Equilibrium Pricing in Incomplete Markets

25 Pages Posted: 15 Aug 2007

See all articles by Elyes Jouini

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

Abdelhamid Bizid

Université Paris I Panthéon-Sorbonne

Date Written: June 2003

Abstract

Given exogenously the price process of some asets, we constrain the price process of other assets, which are characterised by their final pay-offs. We deal with an incomplete market framework in a discrete time model and assume the existence of the equilibrium. In this setup, we derive restrictions on the state-price deflators and these restrictions do not depend on a particular choice of utility function. A stochastic volatility model is numerically investigated as an example. Our approach leads to an interval of admissible prices much better than the arbitrage pricing interval.

Keywords: Incomplete Markets, Pricing, discrete time model

JEL Classification: G10

Suggested Citation

Jouini, Elyes and Bizid, Abdelhamid, Equilibrium Pricing in Incomplete Markets (June 2003). Available at SSRN: https://ssrn.com/abstract=1007182 or http://dx.doi.org/10.2139/ssrn.1007182

Elyes Jouini (Contact Author)

Univ. Paris Dauphine - CEREMADE ( email )

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Abdelhamid Bizid

Université Paris I Panthéon-Sorbonne ( email )

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Paris, IL 75013
France