Incomplete Markets
نویسندگان
چکیده
In reality, markets are incomplete, meaning that some payoffs cannot be replicated by trading in marketed securities. The classic no-arbitrage theory of valuation in a complete market, based on the unique price of a self-financing replicating portfolio, is not adequate for nonreplicable payoffs in incomplete markets. We focus on pricing over-the-counter derivative securities, surveying many proposed methodologies, drawing relationships between them, and evaluating their promise.
منابع مشابه
Complete and Incomplete Markets with Short-Sale Constraints
This paper argues that the introduction of a short-sale constraint in the ArrowRadner framework invalidates standard definitions of complete and incomplete markets. In this constrained set-up, two threshold values with familiar properties arise. The case of a zero short-sale bound set on some security fulfills the standard definition of “incomplete” financial markets. Beyond a particular level ...
متن کاملBeyond Black-Scholes Option Theory
This article presents a new option pricing principle that is more useful than the no-arbitrage principle, especially for incomplete markets. The focus here is on ideas behind mathematics— why the new theory is warranted, and how common sense dictates its construction. I. Complete and Incomplete Markets The real financial world is too complicated for anyone to understand it completely. Thus a si...
متن کاملAsset Allocation under Imperfect Information: Closed-Form Consumption and Portfolio Choice under Incomplete Markets
This paper studies consumption and portfolio choice under incomplete markets and parameter uncertainty. I establish the necessary conditions under which the investor’s optimization problem under incomplete markets can be transformed into a complete markets problem. This paper extends the literature on asset allocation by obtaining closed form solutions to the consumption and portfolio problem o...
متن کاملAn Empirical Analysis of Exchange Rate Pass-Through to Iran's Saffron Export Price
Exchange rate pass-through to the price of traded goods is one of the important issues in economy of developing countries such as Iran and affects the efficiency of the exchange rate policies to improve the trade balance. The main aim of this paper is to empirically analyze exchange rate pass-through to Iran's saffron export price using panel data for twenty destination markets during 2000–2011...
متن کاملAn Extension of Mantel (1976) to Incomplete Markets
In the incomplete markets model with numeraire asset and a single consumption good we show that, even with homothetic preferences, on compact sets of prices Continuity, Walras’ identity and Homogeneity characterize the properties of market excess demand. This result is proved by an extension of Mantel (1976) to the case of incomplete markets. Journal of Economic Literature Class. No. : D 52, C ...
متن کاملCompetitive equilibrium of incomplete markets for securities with smooth payoffs *
Recently, there has been renewed interest about incomplete security markets. Hart (1975) provided an example of nonexistence of competitive equilibria for incomplete real securities, which are claims to commodity bundles. Given this finding, Duffie and Shafer (1985, 1986a, b) prove generic existence of competitive equilibria of incomplete real security markets. Husseini et al. (1990) Geanakoplo...
متن کامل