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Hedging contingent claims on semimartingales

Author

Listed:
  • Robert Jarrow

    (Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, USA)

  • Dilip B. Madan

    () (College of Business and Management, University of Maryland, College Park, MD 20742, USA Manuscript)

Abstract

This paper extends the known results on the equivalence between market completeness and the uniqueness of martingale measures for finite asset economies, to the infinite asset case. Our arguments employ results from the theory of linear operators between locally convex topological vector spaces. This theory of linear operators provides an operational approach to the issue of completeness and uniqueness, that is also more closely connected with the mainstream of empirical asset pricing, than was hitherto available.

Suggested Citation

  • Robert Jarrow & Dilip B. Madan, 1999. "Hedging contingent claims on semimartingales," Finance and Stochastics, Springer, vol. 3(1), pages 111-134.
  • Handle: RePEc:spr:finsto:v:3:y:1999:i:1:p:111-134
    Note: received: December 1996; final version received: December 1997
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    Citations

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    Cited by:

    1. Morten Christensen & Eckhard Platen, 2004. "A General Benchmark Model for Stochastic Jump Sizes," Research Paper Series 139, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Claudio Fontana & Wolfgang J. Runggaldier, 2012. "Diffusion-based models for financial markets without martingale measures," Papers 1209.4449, arXiv.org, revised Feb 2013.
    3. Björk, T. & Kabanov, Y. & Runggaldier, W., 1995. "Bond markets where prices are driven by a general marked point process," SSE/EFI Working Paper Series in Economics and Finance 88, Stockholm School of Economics.
    4. Gerald H.L. Cheang & Carl Chiarella, 2008. "Hedge Portfolios in Markets with Price Discontinuities," Research Paper Series 218, Quantitative Finance Research Centre, University of Technology, Sydney.

    More about this item

    Keywords

    Completeness; uniqueness; martingale measures; asset pricing theory;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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