Continuous Time Equilibrium Pricing of Nonredundant Assets
AbstractIn the context of an incomplete market or of imperfect information, it is well known that the arbitrage approach does not enable us to obtain a unique fair price for all contingent claims but only a fair pricing interval, which is known to be too large to be of great interest. We present here a new approach by exploiting partial conditions issued from equilibrium analysis. The explicit use of market clearing conditions enables us to obtain a unique preference-free admissible price. On a practical point of view, this enables us to give a unique fair price to any contingent claim. Moreover, on a theoretical point of view, this unique price appears to be only dependent on the real economy, as opposed to the financial one.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-008.
Date of creation: 02 Mar 1999
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Other versions of this item:
- Elyès Jouini & Clotilde Napp, 1998. "Contiuous Time Equilibrium Pricing of Nonredundant Assets," Working Papers 98-30, Centre de Recherche en Economie et Statistique.
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