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Wiley InterScience | ||||||||||||||
  Mathematical FinanceVolume 15 Issue 4, Pages 569 - 587 Published Online: 31 Aug 2005 © 2010 Wiley Periodicals, Inc.
Abstract | References | Full Text: HTML, PDF (Size: 192K) | Related Articles | Citation Tracking  OPTIONS AND EFFICIENCY IN MULTIDATE SECURITY MARKETS This paper has benefited from the comments of seminar participants at the 2000 World Congress of the Econometric Society Meeting in Seattle, 2000 Portuguese Finance Network Conference in Braga, 2000 CEMAF/ISCTE Meeting in Lisbon, 1999 Midwest Math. Econ. Meeting in Urbana-Champaign, and University of Minnesota; and from the comments of Luca Benzoni, Sydney Howell, Narayana Kocherlakota, and especially Jan Werner. Financial support from Sub-Programa Ciência e Tecnologia do Segundo Quadro Comunitário de Apoio during the period 1996–2000 is gratefully acknowledged. Manuscript received August 2003; final revision received October 2004. Copyright 2005 Blackwell Publishing KEYWORDS options • spanning • dynamically complete markets • equilibrium ABSTRACTThis paper extends the work of Ross (1976; Q. J. Econ. (90)1, 75–89) to multidate security markets. First, we show that if a primitive security separates states at the terminal date, then there exist multiperiod European options on that security generating dynamically complete markets. Second, we show that if a primitive security conditionally separates states at the terminal date, then there exist multiperiod European options on that security generating generically dynamically complete markets provided that certain conditions hold. Third, we show that there are economies for which the minimum number of multiperiod European options on a primitive security generating generically dynamically complete markets is relatively large. Finally, we show that in these economies, a relatively small number of multiperiod European options on possibly different portfolio strategies of primitive securities generates generically dynamically complete markets. Received: 2003; Accepted: 2004; | 
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