Market clearing and derivative pricing

Robert Anderson () and Roberto Raimondo ()

Economic Theory, 2005, vol. 25, issue 1, 34 pages

Abstract: We develop a method of assigning unique prices to derivative securities, including options, in the continuous-time finance model developed in Raimondo (2001). In contrast with the martingale method of valuing options, which cannot distinguish among infinitely many possible option pricing processes for a given underlying securities price process when markets are dynamically incomplete, our option prices are uniquely determined in equilibrium in closed form as a function of the underlying economic data. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Option pricing; General equilibrium; Dynamically incomplete markets. (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s00199-004-0468-6

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