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Pricing of Non-redundant Derivatives in a Complete Market

Author

Listed:
  • A, Bizid

    (Crest)

  • Elyès Jouini

    (Crest)

  • Pf. Koehl

    (Crest)

Abstract

We consider a complete financial market with primitive assets and derivatives on these primitive assets. Nevertheless, the derivative assets are non-redundant in the market, in the sense that the market is complete, only with their existence. In such a framawork, we derive an equilibrium restriction on the admissible prices of derivatives assets. The equilibrium condition imposes a well-ordering principle equivalent martingale measures. This restriction is preference free and applies whenever the utility functions belong to the general class of Von-Neumann Morgenstern functions. We provide numerical examples that show the applicability of restriction for the computation of option prices
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Suggested Citation

  • A, Bizid & Elyès Jouini & Pf. Koehl, 1997. "Pricing of Non-redundant Derivatives in a Complete Market," Working Papers 97-51, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:97-51
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    File URL: http://crest.science/RePEc/wpstorage/1997-51.pdf
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    Citations

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    Cited by:

    1. Marc Rieger, 2011. "Co-monotonicity of optimal investments and the design of structured financial products," Finance and Stochastics, Springer, vol. 15(1), pages 27-55, January.
    2. Bizid, Abdelhamid & Jouini, Elyès, 2005. "Equilibrium Pricing in Incomplete Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(4), pages 833-848, December.

    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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