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The pricing of supershares

Authors
Journal
Journal of Financial Economics
0304-405X
Publisher
Elsevier
Publication Date
Volume
6
Issue
1
Identifiers
DOI: 10.1016/0304-405x(78)90017-x
Disciplines
  • Mathematics

Abstract

Abstract The new ‘supershare’ securities proposed by Hakansson (1977, 1976) are subject to the same sort of rickless-hedge combinations as are other forms of secondary securities such as stock options. In consequence, the prices of supershares must, even in the absence of distributional assumptions, obey certain pricing relationships with each other and with the underlying primary security. When the primary security is assumed in addition to follow a geometric Brownian motion process, exact supershare valuation formulae of the Black-Scholes (1973) type are obtained. The ‘hedge portfolio algebra’ of Garman (1976) is employed to make the analysis concise.

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