contingent claim

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Topics covered include the theory of interest and the valuation of contingent claims such as life insurance and annuities.
When dividend payments are unrestricted, the complete contingent claims equilibrium can be used to determine equity prices.
In general, if agents have different permanent incomes, the complete contingent claims equilibrium displays greater aggregate fluctuations than the equilibrium with restricted dividend payments.
Valuation of these contingent claims by replication is typically not possible as the wage index cannot be hedged perfectly with financial market instruments.
To see this, consider the behavior of output when agents are prohibited from borrowing or writing contingent claims contracts.
Although this is partially due to regulatory constraints, we foresee substantial developments in the derivatives market for mortality and health contingent claims.
In the complete contingent claims equilibrium, if agents have different permanent incomes, there are aggregate fluctuations in production.
They construct a model with the property that the complete contingent claims equilibrium displays no aggregate fluctuations.
How do subjective probabilities (and state-dependent utilities, for that matter) affect prices for contingent claims?
A complete contingent claims equilibrium can be used to price any security and, in this section, the focus is on pricing equity shares.
Under complete markets, trading in contingent claims brings that property about, but not so under incomplete markets.
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