Journal of Financial and Quantitative Analysis

Research Article

Equilibrium Pricing in Incomplete Markets

Abdelhamid Bizida1 and Elyès Jouinia2

a1, Rabo Securities, Fund Derivatives Structuring, Thames Court, One Queenhithe, London, EC4V 3RL, U.K.

a2, Université Paris 9-Dauphine and Institute Universitaire de France, Place du Maréchal de Lattre de Tassigny, 75 775 Paris Cedex 16, France.


Given the exogenous price process of some assets, we constrain the price process of other assets that are characterized by their final payoffs. We deal with an incomplete market framework in a discrete-time model and assume the existence of the equilibrium. In this setup, we derive restrictions on the state-price deflators. These restrictions do not depend on a particular choice of utility function. We investigate numerically a stochastic volatility model as an example. Our approach leads to an interval of admissible prices that is more robust than the arbitrage pricing interval.