March 2, 1999
Elyes Jouini, Clotilde Napp
ABSTRACT
In the context of an incomplete market or of imperfect information, it is well known that the arbitrage approach
does not enable us to obtain a unique fair price for all contingent claims but only a fair pricing interval, which
is known to be too large to be of great interest. We present here a new approach by exploiting partial conditions
issued from equilibrium analysis. The explicit use of market clearing conditions enables us to obtain a unique
preference-free admissible price. On a practical point of view, this enables us to give a unique fair price to
any contingent claim. Moreover, on a theoretical point of view, this unique price appears to be only dependent
on the real economy, as opposed to the financial one.
Jouini: (212) 998-0279 ejouini@stern.nyu.edu
To download a copy of this paper click here
To request a copy of this paper click here
The Finance Department Working Paper Series has been generously sponsored by