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Simulation Comparison

  • Jian Chen
Chapter

Abstract

In the presence of jumps, the financial market is no longer complete, and option payoffs cannot be replicated by a portfolio of primitive assets. The state price density and the pricing kernel are not unique. In order to price options in an incomplete market, either a candidate pricing kernel is used for the risk-neutral evaluation approach, or a general pricing framework built on the equilibrium exchange economy of Lucas (Econometrica, 46:1429–1445, 1978) is required.

Copyright information

© Xiamen University Press and Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Department of Finance, School of EconomicsXiamen UniversityXiamenChina

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