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Contiuous Time Equilibrium Pricing of Nonredundant Assets

  • Elyès Jouini

    (Crest)

  • Clotilde Napp

    (Crest)

In 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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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 98-30.

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Date of creation: 1998
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Handle: RePEc:crs:wpaper:98-30
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  1. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
  2. Bick, Avi, 1987. "On the Consistency of the Black-Scholes Model with a General Equilibrium Framework," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 259-275, September.
  3. Bernard Bensaid & Jean-Philippe Lesne & Henri Pagès & José Scheinkman, 1992. "Derivative Asset Pricing With Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 2(2), pages 63-86.
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  5. Elyégs Jouini & Hédi Kallal, 1995. "Arbitrage In Securities Markets With Short-Sales Constraints," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 197-232.
  6. He, Hua & Leland, Hayne, 1993. "On Equilibrium Asset Price Processes," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 593-617.
  7. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
  8. repec:fth:inseep:9514 is not listed on IDEAS
  9. Huyěn Pham & Nizar Touzi, 1996. "Equilibrium State Prices In A Stochastic Volatility Model," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 215-236.
  10. A, Bizid & Elyès Jouini & P, F, Koehl, 1997. "Pricing in Incomplete Markets : An Equilibrium Approach," Working Papers 97-41, Centre de Recherche en Economie et Statistique.
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