Holding an option entails some risk, and the value of that option depends on the ‘market price’ of that risk – the covariance of the risk with an appropriate discount factor. Nonetheless we would like not to go back to ‘absolute’ methods that try to price all assets. We can still form an approximate hedge based on a portfolio of basis assets ‘closest to’ the focus payoff. Then the uncertainty about the option value is reduced only to figuring out the price of the residual.

-- Cochrane