Sunday, December 8, 2019

binomial tree - Arbitrage free implies complete market?


In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition


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It seems that to show that the model is complete, we must show that the claims are reachable. That is, we must find replicating portfolios.


Which part of finding the replicating portfolio makes use of the assumption?




Answer



The only reason we are able to solve the system is because of $d

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