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Pricing and hedging derivative securities in incomplete markets : an e-arbitrage approach

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  • Bertsimas, Dimitris.
  • Kogan, Leonid, 1974-
  • Lo, Andrew W.

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File URL: http://hdl.handle.net/1721.1/2673
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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number WP 3973-97..

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Date of creation: 1997
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Handle: RePEc:mit:sloanp:2673

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

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Keywords: HD28 .M414 no.3973-97;

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  1. Duffie, Darrell & Jackson, Matthew O., 1990. "Optimal hedging and equilibrium in a dynamic futures market," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 14(1), pages 21-33, February.
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  3. Huang, Chi-fu, 1987. "An Intertemporal General Equilibrium Asset Pricing Model: The Case of Diffusion Information," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 117-42, January.
  4. He, Hua & Modest, David M, 1995. "Market Frictions and Consumption-Based Asset Pricing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 94-117, February.
  5. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 363-84, March.
  6. Philip H. Dybvig & Chi-fu Huang, 1988. "Nonnegative Wealth, Absence of Arbitrage, and Feasible Consumption Plans," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 860, Cowles Foundation for Research in Economics, Yale University.
  7. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers, University of California at Berkeley RPF-232, University of California at Berkeley.
  8. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, Econometric Society, vol. 41(5), pages 867-87, September.
  9. Boyle, Phelim P. & Emanuel, David, 1980. "Discretely adjusted option hedges," Journal of Financial Economics, Elsevier, Elsevier, vol. 8(3), pages 259-282, September.
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  11. S. Rao Aiyagari & Mark Gertler, 1990. "Asset Returns with Transactions Cost and Uninsured Risk: A Stage III Exercise," NBER Working Papers 3481, National Bureau of Economic Research, Inc.
  12. John Heaton & Deborah Lucas, 1993. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," NBER Working Papers 4249, National Bureau of Economic Research, Inc.
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  14. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 125-144.
  15. Chris I. Telmer, 1991. "Asset Pricing Puzzles and Incomplete Markets," Working Papers, Queen's University, Department of Economics 806, Queen's University, Department of Economics.
  16. Duffie, Darrell, 1987. "Stochastic equilibria with incomplete financial markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 41(2), pages 405-416, April.
  17. Wiggins, James B., 1987. "Option values under stochastic volatility: Theory and empirical estimates," Journal of Financial Economics, Elsevier, Elsevier, vol. 19(2), pages 351-372, December.
  18. Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 281-300, June.
  19. Rubinstein, Mark, 1983. " Displaced Diffusion Option Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 38(1), pages 213-17, March.
  20. Banz, Rolf W & Miller, Merton H, 1978. "Prices for State-contingent Claims: Some Estimates and Applications," The Journal of Business, University of Chicago Press, vol. 51(4), pages 653-72, October.
  21. Mark Rubinstein, 1976. "The Valuation of Uncertain Income Streams and the Pricing of Options," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 7(2), pages 407-425, Autumn.
  22. Heaton, John & Lucas, Deborah, 1992. "The effects of incomplete insurance markets and trading costs in a consumption-based asset pricing model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(3-4), pages 601-620.
  23. Ball, Clifford A & Torous, Walter N, 1985. " On Jumps in Common Stock Prices and Their Impact on Call Option Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 40(1), pages 155-73, March.
  24. Weil, P., 1991. "Equilibrium Asset Prices with Undiversifiable Labor Income Risk," Harvard Institute of Economic Research Working Papers 1564, Harvard - Institute of Economic Research.
  25. Hutchinson, James M & Lo, Andrew W & Poggio, Tomaso, 1994. " A Nonparametric Approach to Pricing and Hedging Derivative Securities via Learning Networks," Journal of Finance, American Finance Association, American Finance Association, vol. 49(3), pages 851-89, July.
  26. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  27. Duffie, Darrell & Shafer, Wayne, 1986. "Equilibrium in incomplete markets: II : Generic existence in stochastic economies," Journal of Mathematical Economics, Elsevier, vol. 15(3), pages 199-216, June.
  28. Amin, Kaushik I, 1993. " Jump Diffusion Option Valuation in Discrete Time," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1833-63, December.
  29. Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1337-56, November.
  30. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 20(3), pages 381-408, June.
  31. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(4), pages 373-413, December.
  32. Avi Bick, 1995. "Quadratic-Variation-Based Dynamic Strategies," Management Science, INFORMS, INFORMS, vol. 41(4), pages 722-732, April.
  33. Sven Rady, 1994. "State Prices Implicit in Valuation Formulae for Derivative Securities: A Martingale Approach," FMG Discussion Papers, Financial Markets Group dp181, Financial Markets Group.
  34. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers, Federal Reserve Bank of Minneapolis 502, Federal Reserve Bank of Minneapolis.
  35. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 285-300, June.
  36. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 145-166.
  37. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, American Finance Association, vol. 49(3), pages 771-818, July.
  38. Johnson, Herb & Shanno, David, 1987. "Option Pricing when the Variance Is Changing," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 22(02), pages 143-151, June.
  39. Jarrow, Robert & Rudd, Andrew, 1982. "Approximate option valuation for arbitrary stochastic processes," Journal of Financial Economics, Elsevier, Elsevier, vol. 10(3), pages 347-369, November.
  40. Lucas, Deborah J., 1994. "Asset pricing with undiversifiable income risk and short sales constraints: Deepening the equity premium puzzle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 325-341, December.
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  43. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  44. S Rao Aiyagari & Mark Gertler, 1997. "Asset Returns with transaction costs and uninsured individual risk," Levine's Working Paper Archive 648, David K. Levine.
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