Prices of State-Contingent Claims Implicit in Option Prices

  title={Prices of State-Contingent Claims Implicit in Option Prices},
  author={Douglas T. Breeden and Robert H. Litzenberger},
  journal={The Wharton School},
This paper implements the time-state preference model in a multi-period economy, deriving the prices of primitive securities from the prices of call options on aggregate consumption. These prices permit an equilibrium valuation of assets with uncertain payoffs at many future dates. Furthermore, for any given portfolio, the price of a $1.00 claim received at a future date, if the portfolio's value is between two given levels at that time, is derived explicitly from a second partial derivative of… 
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