Pricing of Non-redundant Derivatives in a Complete Market
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
|Date of creation:||Dec 1998|
|Publication status:||Published in Review of Derivatives Research, Springer Verlag, 1998, 2 (4), pp.287-314. <10.1007/BF01574150>|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00167151|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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- Yacine Aït-Sahalia & Andrew W. Lo, "undated".
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CRSP working papers
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