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Spanning with indexes

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  • Tian, Weidong

Abstract

This paper presents several approximation theorems of a general contingent claim in terms of index options. We demonstrate that any contingent claim on the primitive securities in an infinite state economy can be approximated arbitrarily close by a portfolio of index options. In addition, these index options are associated with the same payout function, which belongs to a large and explicit class of one-variable measurable functions. I also characterize the layer structure of a general contingent claim.

Suggested Citation

  • Tian, Weidong, 2014. "Spanning with indexes," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 111-118.
  • Handle: RePEc:eee:mateco:v:53:y:2014:i:c:p:111-118
    DOI: 10.1016/j.jmateco.2014.06.007
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    References listed on IDEAS

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    Keywords

    Index; Spanning; Approximation;
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