Arbitrages and Arrow-Debreu Prices
30 Pages Posted: 23 Apr 2008
Date Written: March 28, 2008
Abstract
The goal of this work is to check that there are no arbitrage opportunities in the CBOE market for S&P500 options and to extract from their quotes the state-price density consistent with the Merton model. The structure of the article is as follows: in Section 1 we examine the relations between arbitrages and Arrow-Debreu prices; in Section 2 we consider two models which seem to be consistent with the market prices of index options: the CEV model and the Merton model; finally, in Section 3 we estimate the state-price density consistent with the Merton model. Some conclusions follow.
JEL Classification: G13
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Adverse Selection and the Rights Offer Paradox
By B. Espen Eckbo and Ronald W. Masulis
-
By Jun-koo Kang and René M. Stulz
-
Seasoned Equity Offerings: A Survey
By B. Espen Eckbo and Ronald W. Masulis
-
The Choice between Rights Offerings and Private Equity Placements
By Henrik Cronqvist and Mattias Nilsson
-
By Myron S. Scholes and Mark A. Wolfson
-
An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment
By Abe De Jong and Chris Veld
-
Equity Financing in a Myers-Majluf Framework with Private Benefits of Control
By Xueping Wu and Zheng Wang
-
Equity Financing in a Myers-Majluf Framework with Private Benefits of Control
By Xueping Wu and Zheng Wang
-
Seasoned Equity Issues in a Closely Held Market: Evidence from France