On the Incompleteness of Korean Stock Index Options Market

Byung Kun Rhee (Pukyong National University)

Journal of Derivatives and Quantitative Studies: 선물연구

ISSN: 1229-988X

Article publication date: 30 November 2004

Abstract

When the Black-Scholes assumptions hold market is instantaneously complete and options are redundant securities. This paper tests whether options are needed for spanning of the pricing kernel in addition to the risk-free bond and underlying asset in Korean stock index options market. Using Hansen's GMM estimation method, we find that pricing kernel cannot be spanned with the risk-free bond and underlying asset. Options are needed for spanning to incorporate the additional risk factor. This result is consistent with previous results using American options market data.

Keywords

Citation

Hyun, J.S. and Rhee, B.K. (2004), "On the Incompleteness of Korean Stock Index Options Market", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 12 No. 2, pp. 25-43. https://doi.org/10.1108/JDQS-02-2004-B0002

Publisher

:

Emerald Publishing Limited

Copyright © 2004 Emerald Publishing Limited

License

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