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In an arbitrage-free securities market, all state-contingent claims and the stochastic discount factors can be approximated appropriately by index options with a semi-nonparametric method. These index options are constructed by… Click to show full abstract
In an arbitrage-free securities market, all state-contingent claims and the stochastic discount factors can be approximated appropriately by index options with a semi-nonparametric method. These index options are constructed by efficient algorithms and uniform approximation error under these efficient algorithms are derived. This paper suggests a method to examine state-contingent claims and stochastic discount factors using index options in financial market regardless the market is complete or not.
Journal Title: Annals of Finance
Year Published: 2018
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