Complete and incomplete market in term of probabilistics
What is complete market and incomplete market in term of probabilistic?
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In probabilistic terms we can say as in a complete market there a unique martingale measure is exists, but for an incomplete market there are not unique martingale measures. The interpretation of it is that even if options are risky instruments in complete markets we don’t have to identify our own degree of risk aversion to price them.
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Your firm have just issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%. Describe the amount of first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is at present 7.2%?Solution:
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