TY - JOUR
T1 - Chapter 12 Incomplete Markets
AU - Staum, Jeremy
N1 - Funding Information:
The author is grateful for the support of the National Science Foundation under Grant No. DMS-0202958 and of the National Security Agency under Grant No. H98230-04-1-0047. He thanks Philippe Artzner, Aleš Černý, Dmitry Kramkov, and Costis Skiadas for valuable discussions and for suggesting references. He remains responsible for the views expressed and any errors.
PY - 2007
Y1 - 2007
N2 - 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.
AB - 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.
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U2 - 10.1016/S0927-0507(07)15012-X
DO - 10.1016/S0927-0507(07)15012-X
M3 - Review article
AN - SCOPUS:77950468068
SN - 0927-0507
VL - 15
SP - 511
EP - 563
JO - Handbooks in Operations Research and Management Science
JF - Handbooks in Operations Research and Management Science
IS - C
ER -