Continuous Time Equilibrium Pricing of Nonredundant Assets
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.
|Date of creation:||02 Mar 1999|
|Contact details of provider:|| Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126|
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Web page: http://w4.stern.nyu.edu/finance/
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- repec:crs:wpaper:9514 is not listed on IDEAS
- Huyěn Pham & Nizar Touzi, 1996. "Equilibrium State Prices In A Stochastic Volatility Model," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 215-236.
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