How Does Asymmetric Information Create Market Incompleteness?

Anne Eyraud-Loisel (1)

1 SAF - Laboratoire de Sciences Actuarielle et Financière

The aim of this work is to show that incompleteness is due in general not only to a lack of assets, but also to a lack of information. In this paper we present a simple inuence model where the inuencial agent has access to additional information. This leads to the construction of two models, a complete model and an incomplete model where the only dierence is a dierence of information. This leads to a simple model of incomplete market where the number of assets is not the cause of incompleteness: incomplete information is the explanation. Keywords Information · asymmetric information · option pricing · martin-gales · insider trading · complete market · incomplete market AMS Classication (2000): 60H10, 60G44, 60H07, 60J75, 91G20, 91B70, 93E11. JEL Classication: C60,G11,G14.

Mots clés: incomplete market; Information; asymmetric information; option pricing; martin-gales; Insider trading; complete market ·

Domaines: Finance [q-fin.GN]

Anne Eyraud-Loisel. How Does Asymmetric Information Create Market Incompleteness?. Methodology and Computing in Applied Probability, In press. ⟨hal-01998386⟩