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Description of Incomplete Financial Markets for the Discrete Time Evolution of Risk Assets

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  • N. S. Gonchar

Abstract

In the paper, the martingales and super-martingales relative to a regular set of measures are systematically studied. The notion of local regular super-martingale relative to a set of equivalent measures is introduced and the necessary and sufficient conditions of the local regularity of it in the discrete case are founded. The regular set of measures play fundamental role for the description of incomplete markets. In the partial case, the description of the regular set of measures is presented. The notion of completeness of the regular set of measures have the important significance for the simplification of the proof of the optional decomposition for super-martingales. Using this notion, the important inequalities for some random values are obtained. These inequalities give the simple proof of the optional decomposition of the majorized super-martingales. The description of all local regular super-martingales relative to the regular set of measures is presented. It is proved that every majorized super-martingale relative to the complete set of measures is a local regular one. In the case, as evolution of a risk asset is given by the discrete geometric Brownian motion, the financial market is incomplete and a new formula for the fair price of super-hedge is founded.

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  • N. S. Gonchar, 2018. "Description of Incomplete Financial Markets for the Discrete Time Evolution of Risk Assets," Papers 1810.09366, arXiv.org.
    • Handle: RePEc:arx:papers:1810.09366
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    References listed on IDEAS

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    1. J. Michael Harrison & Stanley R. Pliska, 1981. "Martingales and Stochastic Integrals in the Theory of Continous Trading," Discussion Papers 454, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    5. Nicholas S. Gonchar, 2018. "Martingales and Super-martingales Relative to a Convex Set of Equivalent Measures," Papers 1806.05557, arXiv.org.
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