Optimal positioning in derivative securities

@inproceedings{Carr2000OptimalPI,
  title={Optimal positioning in derivative securities},
  author={Peter Carr and D. Madan},
  year={2000}
}
We consider a simple single period economy in which agents invest so as to maximize expected utility of terminal wealth. We assume the existence of three asset classes, namely a riskless asset (the bond), a single risky asset (the stock), and European options of all strikes (derivatives). In this setting, the inability to trade continuously potentially induces investment in all three asset classes. We consider both a partial equilibrium where all asset prices are initially given, and a more… CONTINUE READING
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