On incompleteness of bond markets with infinite number of random factors

Details On incompleteness of bond markets with infinite number of random factors On incompleteness of bond markets with infinite number of random factors

2008-09-12

arxiv.org/abs/0809.2270v1

Economy

Quantitative Finance

Computational Finance

Scientific paper

The completeness of a bond market model with infinite number of sources of randomness on a finite time interval in the Heath-Jarrow-Morton framework is studied. It is proved that the market in the case of trading strategies is not complete. An explicit construction of a bounded contingent claim, which can not be replicated, is provided. Moreover, a new concept of generalized strategies is introduced and sufficient conditions for the market completeness with such strategies are given. An example of a complete model is provided.

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