Economic Theory

, Volume 1, Issue 1, pp 3–12 | Cite as

Spanning, valuation and options

  • Donald J. Brown
  • Stephen A. Ross
Research Articles


We model the space of marketed assets as a Riesz space of commoditics. In this setting two altenative characterizations are given of the space of continuous options on a bounded asset,s, with limited liability. The first characterization represents every continuous option ons as the uniform limit of portfolios of calls ons. The second characterization represents an option as a continuous sum (or integral) of Arrow-Debreu securities, with respect tos. The pricing implications of these representations are explored. In particular, the Breeden-Littzenberger pricing formula is shown to be a direct consequence of the integral representation theorem.


Direct Consequence Economic Theory Integral Representation Representation Theorem Limited Liability 
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Copyright information

© Springer-Verlag 1991

Authors and Affiliations

  • Donald J. Brown
    • 1
  • Stephen A. Ross
    • 2
  1. 1.Department of EconomicsStanford UniversityStanfordUSA
  2. 2.School of ManagementYale UniversityNew HavenUSA

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