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.
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