Spanning, Valuation and Options
AbstractWe model the space of marketed assets as a Riesz space of commodities. In this setting two alternative characterizations are given of the space of continuous options on a bounded asset, [s], with limited liability. The first characterization represents every continuous option on [s] as the uniform limit of portfolios of calls on [s]. The second characterization represents an option as a continuous sum (or integral) of Arrow-Debreu securities, with respect to [s]. The pricing implications of these representations are explored. In particular, the Breeden-Littzenberger pricing formula is shown to be a direct consequence of the integral representation theorem.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 1 (1991)
Issue (Month): 1 (January)
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- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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