Review of Derivatives Research

, Volume 2, Issue 4, pp 287–314 | Cite as

Pricing of non-redundant derivatives in a complete market

  • Abdelhamid Bizid
  • Elyès Jouini
  • Pierre -François Koehl


We consider a complete financial market with primitive assets and derivatives on these primitive assets. Nevertheless, the derivative assets are non-redundant in the market, in the sense that the market is complete,only with their existence. In such a framework, we derive an equilibrium restriction on the admissible prices of derivative assets. The equilibrium condition imposes a well-ordering principle restricting the set of probability measures that qualify as candidate equivalent martingale measures. This restriction is preference free and applies whenever the utility functions belong to the general class of Von-Neumann Morgenstern functions. We provide numerical examples that show the applicability of the restriction for the computation of option prices.


incomplete markets equilibrium derivatives pricing 


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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Abdelhamid Bizid
    • 1
  • Elyès Jouini
    • 2
    • 1
    • 3
  • Pierre -François Koehl
    • 4
  1. 1.CERMSEM-Université de Paris 1 Panthéon-SorbonneFrance
  2. 2.CRESTMalakoff CedexFrance
  3. 3.Stern Business SchoolNew York University and Center for Economic Policy ResearchUSA
  4. 4.Caisse des Dépôts and ConsignationsParis

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