On statistical indistinguishability of the complete and incomplete markets
AbstractThe possibility of statistical evaluation of the market completeness and incompleteness is investigated for continuous time diffusion stock market models. It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into a incomplete one. The paper shows that market incompleteness is also non-robust: small deviations can convert an incomplete model into a complete one. More precisely, it is shown that, for any incomplete market from a wide class of models, there exists a complete market model with arbitrarily close paths of the stock prices and the market parameters. This leads to a counterintuitive conclusion that the incomplete markets are indistinguishable from the complete markets in the terms of the market statistics.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1209.4695.
Date of creation: Sep 2012
Date of revision: May 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
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