Chapter

Completeness and Hedging

Tomas Björk

in Arbitrage Theory in Continuous Time

Second edition

Published in print March 2004 | ISBN: 9780199271269
Published online October 2005 | e-ISBN: 9780191602849 | DOI: http://dx.doi.org/10.1093/0199271267.003.0008

Series: Oxford Finance Series

Completeness and Hedging

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In the previous chapter, the derivation of the pricing equation required the assumption that the derivative asset a priori possessed a price process, and actually was traded on the market. This chapter examines arbitrage pricing from a different perspective, which eliminates the need for the aforementioned assumption, and explains the fact that the simple claims investigated earlier can be given a unique price. Practice exercises are included.

Keywords: hedging; completeness; pricing; derivatives

Chapter.  4291 words. 

Subjects: Financial Markets

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