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Arbitrage pricing and equilibrium pricing : compatibility conditions

  • Elyès Jouini

    ()

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

  • Clotilde Napp

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

The problem of fair pricing of contingent claims is well understood in the contex of an arbitrage free, complete financial market, with perfect information : the so-called arbitrage approach permits to construct a unique valuation operator compatible with observed price processes. In the more realistic context of partial information, the equilibrium analysis permits to construct a unique valuation operator which only depends on some particular price processes as well as on the dividends process. In this paper we present these two approaches and we explore their links and the conditions under which they are compatible ; In particular, we derive from the equilibrium conditions some links between the price processes paramaters and those of the dividend processes paramaters

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Paper provided by HAL in its series Post-Print with number halshs-00176423.

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Date of creation: 2002
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Publication status: Published, Collected Papers of the New York University Mathematical Finance Seminar, New York University (Ed.), 2002, 131-159
Handle: RePEc:hal:journl:halshs-00176423
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00176423/en/
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  1. Elyes Jouini & Clotilde Napp, 1999. "Continuous Time Equilibrium Pricing of Nonredundant Assets," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-008, New York University, Leonard N. Stern School of Business-.
  2. Elyès Jouini & Hédi Kallal, 1999. "Viability and Equilibrium in Securities Markets with Frictions," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 275-292.
  3. Darrell Duffie & William Zame, 1988. "The Consumption-Based Capital Asset Pricing Model," Discussion Papers 88-10, University of Copenhagen. Department of Economics.
  4. He, Hua & Leland, Hayne, 1993. "On Equilibrium Asset Price Processes," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 593-617.
  5. Huyěn Pham & Nizar Touzi, 1996. "Equilibrium State Prices In A Stochastic Volatility Model," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 215-236.
  6. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. 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.
  8. Jouini Elyes & Kallal Hedi, 1995. "Martingales and Arbitrage in Securities Markets with Transaction Costs," Journal of Economic Theory, Elsevier, vol. 66(1), pages 178-197, June.
  9. Araujo, A. & Monteiro, P. K., 1989. "Equilibrium without uniform conditions," Journal of Economic Theory, Elsevier, vol. 48(2), pages 416-427, August.
  10. 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.
  11. Araujo,A. & Monteiro,P.K., 1989. "General equilibrium with infinitely many goods: The case of seperable utilities," Discussion Paper Serie A 249, University of Bonn, Germany.
  12. Bick, Avi, 1990. " On Viable Diffusion Price Processes of the Market Portfolio," Journal of Finance, American Finance Association, vol. 45(2), pages 673-89, June.
  13. Elyès Jouini & Vincent Porte, 2007. "Efficient Trading Strategies," Working Papers halshs-00176616, HAL.
  14. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June.
  15. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  16. Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, vol. 53(6), pages 1337-56, November.
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