Equilibrium Pricing of Derivative Securities in Dynamically Incomplete Markets

Robert M. Anderson () and Roberto C. Raimondo ()
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Robert M. Anderson: University of California
Roberto C. Raimondo: University of Melbourne

Chapter 3 in Institutions, Equilibria and Efficiency, 2006, pp 27-48 from Springer

Abstract: Summary We develop a method of assigning unique prices to derivative securities, including options, in the continuous-time finance model developed in Raimondo [47]. 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.

Keywords: Option pricing; General equilibrium; Dynamically incomplete markets (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:steccp:978-3-540-28161-0_3

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DOI: 10.1007/3-540-28161-4_3

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