### Abstract

It is generally assumed that you can make a financial asset out of any underlying event or combination thereof, and then sell a security. We show that while this is theoretically true from the financial engineering perspective, compound securities might be intractable to price. Even given no information asymmetries, or adversarial sellers, it might be computationally intractable to put a value on these, and the associated computational complexity might afford an advantage to the party with more compute power. We prove that the problem of pricing an option on a single security with unbounded compounding is PSPACE hard, even when the behavior of the underlying security is computationally tractable. We also show that in the oracle model, even when compounding is limited to at most k layers, the complexity of pricing securities grows exponentially in k.

Original language | English (US) |
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Title of host publication | ITCS 2014 - Proceedings of the 2014 Conference on Innovations in Theoretical Computer Science |

Publisher | Association for Computing Machinery |

Pages | 103-104 |

Number of pages | 2 |

ISBN (Print) | 9781450322430 |

DOIs | |

State | Published - Jan 1 2014 |

Event | 2014 5th Conference on Innovations in Theoretical Computer Science, ITCS 2014 - Princeton, NJ, United States Duration: Jan 12 2014 → Jan 14 2014 |

### Publication series

Name | ITCS 2014 - Proceedings of the 2014 Conference on Innovations in Theoretical Computer Science |
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### Other

Other | 2014 5th Conference on Innovations in Theoretical Computer Science, ITCS 2014 |
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Country | United States |

City | Princeton, NJ |

Period | 1/12/14 → 1/14/14 |

### All Science Journal Classification (ASJC) codes

- Computational Theory and Mathematics

### Keywords

- Computational complexity
- Computational finance
- Financial securities
- Pricing

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## Cite this

*ITCS 2014 - Proceedings of the 2014 Conference on Innovations in Theoretical Computer Science*(pp. 103-104). (ITCS 2014 - Proceedings of the 2014 Conference on Innovations in Theoretical Computer Science). Association for Computing Machinery. https://doi.org/10.1145/2554797.2554809