Arbitrages and Arrow-Debreu Prices
The 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.
Volume (Year): 98 (2008)
Issue (Month): 6 (November-December)
|Contact details of provider:|| |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Lars Peter Hansen & Ravi Jagannathan, 1990.
"Implications of Security Market Data for Models of Dynamic Economies,"
NBER Technical Working Papers
0089, National Bureau of Economic Research, Inc.
- Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-62, April.
- Lars Peter Hansen & Ravi Jagannathan, 1990. "Implications of security market data for models of dynamic economies," Discussion Paper / Institute for Empirical Macroeconomics 29, Federal Reserve Bank of Minneapolis.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Garman, Mark B., 1976. "An algebra for evaluating hedge portfolios," Journal of Financial Economics, Elsevier, vol. 3(4), pages 403-427, October.
- Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-51, October.
- Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
- Geske, Robert, 1977. "The Valuation of Corporate Liabilities as Compound Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 541-552, November.
- Myron S. Scholes & Mark A. Wolfson, 1989.
"Decentralized Investment Banking: The Case of Discount Dividend-Reinve stment and Stock-Purchase Plans,"
NBER Working Papers
3093, National Bureau of Economic Research, Inc.
- Scholes, Myron S. & Wolfson, Mark A., 1989. "Decentralized investment banking : The case of discount dividend-reinvestment and stock-purchase plans," Journal of Financial Economics, Elsevier, vol. 24(1), pages 7-35, September.
- Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
When requesting a correction, please mention this item's handle: RePEc:rpo:ripoec:v:98:y:2008:i:6:p:43-78. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabrina Marino)
If references are entirely missing, you can add them using this form.