How Does Asymmetric Information Create Market Incompleteness?

Abstract

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 • martingales • insider trading • complete market • incomplete market