Markets that don't replicate any option
AbstractIt is well known from the work of S. Ross that a securities market is complete if and only if each call option can be replicated using available securities. The present short note announces the following surprising complementary result to Ross' important contribution. . If the number of securities is less than half the number of states of the world, then not a single option can be replicated by traded securities. This provides further strong motivation for relaxing the assumption of a perfect market in the theory of option pricing and portfolio insurance.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 76 (2002)
Issue (Month): 3 (August)
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Other versions of this item:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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