Mathematical finance

Complete market

In economics, a complete market (aka Arrow-Debreu market or complete system of markets) is a market with two conditions: 1. * Negligible transaction costs and therefore also perfect information, 2. * there is a price for every asset in every possible state of the world In such a market, the complete set of possible bets on future states of the world can be constructed with existing assets without friction. Here, goods are state-contingent; that is, a good includes the time and state of the world in which it is consumed. For instance, an umbrella tomorrow if it rains is a distinct good from an umbrella tomorrow if it is clear. The study of complete markets is central to state-preference theory. The theory can be traced to the work of Kenneth Arrow (1964), GĂ©rard Debreu (1959), Arrow & Debreu (1954) and Lionel McKenzie (1954). Arrow and Debreu were awarded the Nobel Memorial Prize in Economics (Arrow in 1972, Debreu in 1983), largely for their work in developing the theory of complete markets and applying it to the problem of general equilibrium. (Wikipedia).

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Related pages

Kenneth Arrow | Linear span | General equilibrium theory | Incomplete markets | GĂ©rard Debreu | Perfect information | Frictionless market