This paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash-Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market-value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived.

This paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash‐Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market‐value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived.

This paper focuses on the role of scalpers as marketmakers in the competitive auction of futures exchanges. We use transactions data of a representative scalper to identify the source of scalper earnings. We find that scalpers provide liquidity services to incoming market orders, thereby facilitating commercial hedging. Scalper earnings are positively related to the bid-asked spread and negatively related to the length of time a position is held.

This paper focuses on the role of scalpers as marketmakers in the competitive auction of futures exchanges. We use transactions data of a representative scalper to identify the source of scalper earnings. We find that scalpers provide liquidity services to incoming market orders, thereby facilitating commercial hedging. Scalper earnings are positively related to the bid‐asked spread and negatively related to the length of time a position is held.

This paper presents a method for solving the mean‐variance portfolio selection problem that is applicable to the case where the number of securities is nondenumerably infinite. Necessary conditions for the existence of an optimal portfolio density are obtained and an expression for the efficient frontier is derived. The conditions for the existence of an optimal portfolio of continuously maturing bonds when their covariance matrix is singular are used to derive an arbitrage‐free bond pricing equation. A method for estimating the covariance matrix and the associated efficient frontier is presented.

This paper presents a method for solving the mean-variance portfolio selection problem that is applicable to the case where the number of securities is nondenumerably infinite. Necessary conditions for the existence of an optimal portfolio density are obtained and an expression for the efficient frontier is derived. The conditions for the existence of an optimal portfolio of continuously maturing bonds when their covariance matrix is singular are used to derive an arbitrage-free bond pricing equation. A method for estimating the covariance matrix and the associated efficient frontier is presented.