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.
Assume you are a euro-based investor who just sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to purchase Microsoft shares for $120 per share; the exchange rate was $1.15 per euro. You sold the stock for $135 per share
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