Spanning with indexes

Weidong Tian

Journal of Mathematical Economics, 2014, vol. 53, issue C, 111-118

Abstract: This paper presents several approximation theorems of a general contingent claim in terms of index options. We demonstrate that any contingent claim on the primitive securities in an infinite state economy can be approximated arbitrarily close by a portfolio of index options. In addition, these index options are associated with the same payout function, which belongs to a large and explicit class of one-variable measurable functions. I also characterize the layer structure of a general contingent claim.

Keywords: Index; Spanning; Approximation (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:53:y:2014:i:c:p:111-118

DOI: 10.1016/j.jmateco.2014.06.007

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