Chapter 12 Incomplete Markets

Jeremy Staum*

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

18 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)511-563
Number of pages53
JournalHandbooks in Operations Research and Management Science
Volume15
Issue numberC
DOIs
StatePublished - 2007

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Computer Science Applications
  • Management Science and Operations Research

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