Hostname: page-component-7dd5485656-dk7s8 Total loading time: 0 Render date: 2025-10-30T08:00:28.257Z Has data issue: false hasContentIssue false
  • English
  • Français

Equilibrium Pricing in Incomplete Markets

Published online by Cambridge University Press:  06 April 2009

Abdelhamid Bizid  and
Elyès Jouini
Abdelhamid Bizid
Affiliation:
abdelhamid.bizid@rabobank.com, Rabo Securities, Fund Derivatives Structuring, Thames Court, One Queenhithe, London, EC4V 3RL, U.K.
Elyès Jouini
Affiliation:
jouini@ceremade.dauphine.fr, Université Paris 9-Dauphine and Institute Universitaire de France, Place du Maréchal de Lattre de Tassigny, 75 775 Paris Cedex 16, France.
Get access Rights & Permissions [Opens in a new window]

Abstract

Given the exogenous price process of some assets, we constrain the price process of other assets that are characterized by their final payoffs. We deal with an incomplete market framework in a discrete-time model and assume the existence of the equilibrium. In this setup, we derive restrictions on the state-price deflators. These restrictions do not depend on a particular choice of utility function. We investigate numerically a stochastic volatility model as an example. Our approach leads to an interval of admissible prices that is more robust than the arbitrage pricing interval.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 4 , December 2005 , pp. 833 - 848
Copyright
Copyright © School of Business Administration, University of Washington 2005

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Aït-Sahalia, Y., and Lo, A. W.. “Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices.” Journal of Finance, 53 (1998), 499–547.CrossRefGoogle Scholar
Bizid, A.; Jouini, E.; and Koehl, P.-F.. “Pricing of Non-Redundant Derivatives in a Complete Market.” Review of Derivative Research, 2 (1999), 287–314.CrossRefGoogle Scholar
Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (1973), 637–659.CrossRefGoogle Scholar
Dybvig, P. “Distributional Analysis of Portfolio Choice.” Journal of Business, 61 (1988a), 369–393.CrossRefGoogle Scholar
Dybvig, P. “Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market.” Review of Financial Studies, 1 (1988b), 67–88.CrossRefGoogle Scholar
Harrison, J. M., and Kreps, D.. “Martingales and Arbitrage in Multiperiod Securities Markets.” Journal of Economic Theory, 20 (1979), 381–408.CrossRefGoogle Scholar
Jouini, E., and Kallal, H.. “Efficient Trading Strategies in the Presence of Market Frictions.” Review of Financial Studies, 14 (2001), 343–369.CrossRefGoogle Scholar
Karatzas, I., and Shreve, S. E.. Methods of Mathematical Finance. New York, NY: Springer Verlag (1998).Google Scholar
Perrakis, S. “Option Bounds in Discrete Time: Extensions and the Pricing of the American Put.” Journal of Business, 59 (1986), 119–141.CrossRefGoogle Scholar
Perrakis, S., and Ryan, P. J.. “Option Pricing Bounds in Discrete Time.” Journal of Finance, 39 (1984), 519–525.CrossRefGoogle Scholar
Ritchken, P. “On Option Pricing Bounds.” Journal of Finance, 40 (1985), 1219–1233.CrossRefGoogle Scholar