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On statistical indistinguishability of complete and incomplete discrete time market models

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  • Nikolai Dokuchaev

Abstract

We investigate the possibility of statistical evaluation of the market completeness for discrete time 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. We show that, for any incomplete market from a wide class of discrete time models, there exists a complete market model with arbitrarily close stock prices. This means that incomplete markets are indistinguishable from the complete markets in the terms of the market statistics.

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  • Nikolai Dokuchaev, 2015. "On statistical indistinguishability of complete and incomplete discrete time market models," Papers 1505.00638, arXiv.org.
    • Handle: RePEc:arx:papers:1505.00638
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    7. Nikolai Dokuchaev, 2012. "On statistical indistinguishability of the complete and incomplete markets," Papers 1209.4695, arXiv.org, revised May 2013.
    8. Neil Shephard & Ole E. Barndorff-Nielsen, 2003. "Power variation and stochastic volatility: a review and some new results," Economics Series Working Papers 2003-W19, University of Oxford, Department of Economics.
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