Spanning with indexes |
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| Affiliation: | 1. Departament de Matemàtica Aplicada 3 i Escola Politècnica Superior d’Enginyeria de Manresa, Universitat Politècnica de Catalunya., Spain;2. Department of Mathematics and Computer Science, University of San Diego, San Diego, CA, 92110-2492, USA;1. Paris School of Economics - University Paris 1, CES, 106 bd de l’Hopital, 75013, Paris, France;2. University of La Rochelle (MIA), Avenue Michel Crepeau, 47042, La Rochelle, France;3. University of Leiden, P.O. Box 9512, 2300 RA Leiden, The Netherlands |
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| 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. |
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| Keywords: | Index Spanning Approximation |
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