SFB 303 Discussion Paper No. B - 128

Author: Müller, Sigrid M.
Title: Stock Price Distributions, Perfect Option Hedging, and Complete Markets
Abstract: This paper determines the class of stock price distributions that allow for arbitrage pricing (perfect hedging) of all European call options using only the underlying stock and a riskless asset in a continuous-time trading model. First the case of stationary return dynamics is considered. It is shown that the model must be of either the Brownian motion or the Poisson type. Then the non-stationary case is considered and a complete characterization of stock price processes with this property is provided. Several examples are given to show the importance of this result.
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Creation-Date: November 1989
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