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Record W2043436277 · doi:10.3905/jod.2001.319171

How Well Can Options Complete Markets?

2001· article· en· W2043436277 on OpenAlex
Mark Cassano

Why this work is in the frame

A frame that forgets how it found something cannot be audited. These are the routes that admitted this work.

affAt least one author lists a Canadian institution in the pinned OpenAlex snapshot.

Bibliographic record

VenueThe Journal of Derivatives · 2001
Typearticle
Languageen
FieldEconomics, Econometrics and Finance
TopicStochastic processes and financial applications
Canadian institutionsUniversity of Calgary
Fundersnot available
KeywordsPortfolioCompleteness (order theory)Complete marketEconomicsDatabase transactionTransaction costStochastic gameExpected utility hypothesisContingencyRisk aversion (psychology)MicroeconomicsActuarial scienceMathematical economicsFinancial economicsComputer scienceMathematics

Abstract

fetched live from OpenAlex

An interesting and important question about options is how much they expand the range of investment opportunities in the market. In the Black-Scholes framework, the market is already “dynamically complete”: options are redundant assets because any option payoff can be replicated by dynamically trading the underlying asset and riskless bonds. But in the real world, options do expand investment opportunities, because the replication strategy entails infinite trading and infinite transaction costs. The next question is whether options can make the market statically complete, in that any possible contingency can be perfectly hedged by a static portfolio of options. Theory shows that this is true, but that it requires an infinite number of options with a continuum of different strikes. In this article, Cassano considers how close one can get to the ideal of static completeness using just a small number of options. Since not all risk can be hedged, how close is “close” depends on the investor’s utility function. But Cassano shows that under standard assumptions with risk aversion in a range that is commonly assumed, it only takes a handful of different options, say four or five, to achieve such near-completeness that it would only be worth a few pennies per hundred dollars of wealth to a typical investor to go the rest of the way to a fully complete market.

Fetched live from OpenAlex and de-inverted. Abstracts are not stored in this database: the inverted indexes are 8.6 GB of the frame’s 9.3 GB of text, and the host has 13 GB free.

Full frame distilled prediction

Teacher imitation

Not calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.

metaresearch head score (Codex)0.000
metaresearch head score (Gemma)0.000
Version: codex-gemma-dda1882f352aValidation status: machine_predicted_unvalidated
Candidate categoriesnone
Consensus categoriesnone
DomainCandidate signal: none · Consensus signal: none
Study designCandidate signal: Theoretical or conceptual · Consensus signal: Theoretical or conceptual
GenreCandidate signal: Empirical · Consensus signal: none
Teacher disagreement score0.917
Threshold uncertainty score0.248

Codex and Gemma teacher scores by category

CategoryCodexGemma
Metaresearch0.0000.000
Meta-epidemiology (narrow)0.0000.000
Meta-epidemiology (broad)0.0000.000
Bibliometrics0.0000.000
Science and technology studies0.0000.000
Scholarly communication0.0000.000
Open science0.0000.000
Research integrity0.0000.000
Insufficient payload (model declined to judge)0.0000.000

Machine scores (provisional)

The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.

Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.

Opus teacher head0.042
GPT teacher head0.226
Teacher spread0.184 · how far apart the two teachers sit on this one work
Validation statusscore_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from it