State prices

In financial economics, a state-price security, also called an Arrow–Debreu security (from its origins in the Arrow–Debreu model), a pure security, or a primitive security is a contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future and pays zero numeraire in all the other states. The price of this security is the state price of this particular state of the world. The state price vector is the vector of state prices for all states. As such, any derivatives contract whose settlement value is a function of an underlying asset whose value is uncertain at contract date can be decomposed as a linear combination of its Arrow–Debreu securities, and thus as a weighted sum of its state prices.

State prices

In financial economics, a state-price security, also called an Arrow–Debreu security (from its origins in the Arrow–Debreu model), a pure security, or a primitive security is a contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future and pays zero numeraire in all the other states. The price of this security is the state price of this particular state of the world. The state price vector is the vector of state prices for all states. As such, any derivatives contract whose settlement value is a function of an underlying asset whose value is uncertain at contract date can be decomposed as a linear combination of its Arrow–Debreu securities, and thus as a weighted sum of its state prices.