Post by Sapphire Capital on Jul 11, 2008 7:00:22 GMT 4
Arbitrages and Arrow-Debreu Prices
GAIA BARONE
Stanford University
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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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1124448_code1004723.pdf?abstractid=1124448&mirid=2
GAIA BARONE
Stanford University
--------------------------------------------------------------------------------
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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1124448_code1004723.pdf?abstractid=1124448&mirid=2