Insurance seen and unseen

@inproceedings{Grossman1988InsuranceSA,
  title={Insurance seen and unseen},
  author={Sanford J. Grossman},
  year={1988}
}
T he Black-Scholes approach to option pricing is commonly used to value derivative securities. This approach computes a price for the option by finding a dynamic trading strategy involving stock and cash that replicates the payoff of the option.’ The assumption that there exists such a replicating strategy implies that the option is redundant. I argue here that this approach ignores the informational role of real markets. The price of a traded option conveys important information about the… 
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