If we are in a complete market all contingent claims can be replicated. As we have seen in, this enables us to price derivatives without having to explicitly calculate the replicating portfolio. This...

If we are in a complete market all contingent claims can be replicated. As we have seen in, this enables us to price derivatives without having to explicitly calculate the replicating portfolio. This can be useful, particularly for the continuous time models introduced later. In our finite economy it is clear what conditions are required for completeness. There must be at least as many assets as states of the economy, i.e. m ≤ n, and these must span an appropriate space.