The Second Fundamental Theorem of Asset Pricing

This paper presents a resolution of the paradox proposed by the example of an economy with complette markets and a multiplicityof martingale measures constructed by Artzner and Heath (1995). The resolution lies in noting that completeness is with respect to a topology on the space of cash flows and...

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Bibliographic Details
Published in:Mathematical finance 1999-07, Vol.9 (3), p.255-273
Main Authors: Jarrow, Robert A., Jin, Xing, Madan, Dilip B.
Format: Article
Language:English
Subjects:
Asset valuation
Capital market
Cash flow
Cash flow forecasting
Efficient markets
Financial economics
market completeness
Mathematical economics
Mathematical models
Prices
state price density
Stock exchange
Studies
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Summary:This paper presents a resolution of the paradox proposed by the example of an economy with complette markets and a multiplicityof martingale measures constructed by Artzner and Heath (1995). The resolution lies in noting that completeness is with respect to a topology on the space of cash flows and is connected with uniqueness of the price functional in the topological dual space. Uniqueness may be lost outside the dual and this is what occurs in the counterexample of Artzner and Heath.
ISSN:0960-1627
1467-9965
DOI:10.1111/1467-9965.00070