Arbitrage pricing and equilibrium pricing : compatibility conditions
Napp, Clotilde; Jouini, Elyès (2001), Arbitrage pricing and equilibrium pricing : compatibility conditions, in Avellaneda, Marco, Quantitative analysis in financial markets : collected papers of the New York University Mathematical Finance Seminar. Volume III, World Scientific, p. 131-158
Book titleQuantitative analysis in financial markets : collected papers of the New York University Mathematical Finance Seminar. Volume III
Book authorAvellaneda, Marco
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Abstract (EN)The problem of fair pricing of contingent claims is well understood in the contex of an arbitrage free, complete financial market, with perfect information : the so-called arbitrage approach permits to construct a unique valuation operator compatible with observed price rocesses. In the more realistic context of partial information, the equilibrium analysis permits to construct a unique valuation operator which only depends on some particular price processes as well as on the dividends process. In this paper we present these two approaches and we explore their links and the conditions under which they are compatible ; In particular, we derive from the equilibrium conditions some links between the price processes paramaters and those of the dividend processes paramaters.
Subjects / Keywordsoptimality; equilibrium; incomplete markets; derivatives pricing; Arbitrage; nonredudant assets
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