Arbitrages and Arrow-Debreu Prices

Gaia Barone ()
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Gaia Barone: Università LUISS “Guido Carli”

Rivista di Politica Economica, 2008, vol. 98, issue 6, 43-78

Abstract: The goal of this work is to check that there are no arbitrage opportunities in the CBOE market for S&P500 options and to extract from these options’ quotes the state-price density consistent with the Merton model. The structure of the article is as follows: in Section 2 we examine the relations between arbitrages and Arrow-Debreu prices; in Section 3 we consider two models which seem to be consistent with the market prices of index options: the CEV model and the Merton model; finally, in Section 4 we estimate the state-price density consistent with the Merton-Geske model. Some conclusions follow.

Keywords: state-price density; index options; Merton-Geske model (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:98:y:2008:i:6:p:43-78

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