Spanning and derivative-security valuation

• 成果类型: Article
• 署名作者: Bakshi, G; Madan, D
• 署名单位: University System of Maryland; University of Maryland College Park
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(99)00050-1
• 发表日期: 2000
• 页码: 205-238
• 关键词: spanning; characteristic functions; state-price density; pricing of contingent claims; Arrow-Debreu securities

摘要

This article provides the economic foundations for valuing derivative securities. In particular, it establishes how the characteristic function (of the future uncertainty) is basis augmenting and spans the payoff universe of most, if not all, derivative assets. From the characteristic function of the state-price density, it is possible to analytically price options on any arbitrary transformation of the underlying uncertainty. By differentiating (or translating) the characteristic function, limitless pricing and/or spanning opportunities can be designed. The strength and versatility of the methodology is inherent when valuing (1) average-interest options, (2) correlation options, and (3) discretely monitored knock-out options. (C) 2000 Elsevier Science S.A, All rights reserved. JEL classification: CIO; G12; G13.