Financial market structures revealed by pricing rulesEfficient complete markets are prevalent

Resumo

It is well known that when an arbitrage-free financial market is incomplete or has tradable financial assets with frictions there must be multiple risk-neutral probability measures. The main motivation for the present study is to elucidate what type of market structure usually emerges from pricing rules. First, we obtain that finitely generated pricing rules, characterized by polytopes of probabilities, capture the class of all finite arbitrage-free financial markets that are potentially incomplete or subject to frictions affecting tradable assets. Next, we provide a novel characterization of efficient securities and introduce related notions of market completeness that underlies pricing rules. Our main result shows that the class of efficient complete markets with bid-ask spreads is the prevalent case revealed by finitely generated pricing rules. © 2017 Elsevier Inc.

Ficha do documento

Tipo

Artigo científico

Ano

2018

Instituição

Academic Press Inc.

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jet.2017.11.002

Identificador

oai:repositorio.fgv.br:10438/25525

Palavras-chave

Bid-ask spreadsComplete marketsEfficiencyIncompletenessPricing ruleRisk-neutral probabilitiesEficiência industrial