On statistical indistinguishability of complete and incomplete market models
Purpose: This paper aims to investigate possibility of statistical detection of market completeness for continuous time diffusion stock market models. Design/methodology/approach: The paper uses theory of forecasting to find criteria of predictability of market parameters such as volatilities and the appreciation rates. Findings: It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into an incomplete one. The paper shows that market incompleteness is also non-robust: for any incomplete market from a wide class of models, there exists a complete market model with arbitrarily close paths of the stock prices and the market parameters. Originality/value: The paper results lead to a counterintuitive conclusion that the incomplete markets are indistinguishable in the terms of the market statistics.
Year of publication: |
2021
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Authors: | Dokuchaev, Nikolai |
Published in: |
Studies in Economics and Finance. - Emerald, ISSN 1086-7376, ZDB-ID 2070355-7. - Vol. 38.2021, 1 (08.02.), p. 114-125
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Publisher: |
Emerald |
Saved in:
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