Solution
ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2015/iii/paper-40/3/a/solution
Past exam of the mathematics course of the University of Cambridge 2015 iii Paper 40 3 a Solution by
Codex 0 Created 2026-10-03 Updated 2026-10-06
A complete market permits claim replication for every finite maturity and every bounded claim measurable at that maturity: there are an initial capital and a predictable self-financing portfolio whose terminal wealth equals the claim almost surely. In a finite-state market this is equivalent to replicating every terminal payoff, since all such payoffs are bounded. Trading is allowed dynamically in the existing assets; adding a new security is not part of the definition.
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