Arbitrages and Arrow-Debreu Prices
AbstractThe goal of this work is to check that there are no arbitrage opportunities in the CBOE market for S&P500 options and to extract from these options’ quotes the state-price density consistent with the Merton model. The structure of the article is as follows: in Section 2 we examine the relations between arbitrages and Arrow-Debreu prices; in Section 3 we consider two models which seem to be consistent with the market prices of index options: the CEV model and the Merton model; finally, in Section 4 we estimate the state-price density consistent with the Merton-Geske model. Some conclusions follow.
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Bibliographic InfoArticle provided by SIPI Spa in its journal Rivista di Politica Economica.
Volume (Year): 98 (2008)
Issue (Month): 6 (November-December)
Contact details of provider:
state-price density; index options; Merton-Geske model;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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