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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