Examples and Counterexamples of Cost-efficiency in Incomplete Markets
<|reference_start|>Examples and Counterexamples of Cost-efficiency in Incomplete Markets: We present a number of examples and counterexamples to illustrate the results on cost-efficiency in an incomplete market obtained in [BS24]. These examples and counterexamples do not only illustrate the results obtained in [BS24], but show the limitations of the results and the sharpness of the key assumptions. In particular, we make use of a simple 3-state model in which we are able to recover and illustrate all key results of the paper. This example also shows how our characterization of perfectly cost-efficient claims allows to solve an expected utility maximization problem in a simple incomplete market (trinomial model) and recover results from [DS06, Chapter 3], there obtained using duality.<|reference_end|>
@article{bernard2024examples,
    title={Examples and Counterexamples of Cost-efficiency in Incomplete Markets},
    author={Carole Bernard and Stephan Sturm},
    journal={arXiv preprint arXiv:2407.08756},
    year={2024},
    archivePrefix={arXiv},
    eprint={2407.08756},
    primaryClass={cs.GT math.PR q-fin.MF q-fin.PM}
}