Difference between complete market and binomial models
What are the difference between complete market and binomial model?
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In the complete market you can replicate derivatives along with the simpler instruments. Although you can also turn it on its head in order that you can hedge the derivative along with the underlying instruments to make a risk-free instrument. Within the binomial model you can replicate an option by stock and cash, or you can hedge the option along with the stock to make cash. Similar idea, similar equations, just move terms to be on various sides of the ‘equals’ sign.
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Mr. James K. Silber, an avid international investor, sold a share of Rhone-Poulenc only, a French firm, for FF42. The share was bought for FF42 year ago. The exchange rate is FF6.15 per U.S. dollar and was FF6.65 per dollar a year ago. Mr. Silber acquired FF4
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