Mathematical Methods of Operations Research

, Volume 81, Issue 2, pp 137–146

Complete markets do not allow free cash flow streams

Original Article

DOI: 10.1007/s00186-014-0489-2

Cite this article as:
Bäuerle, N. & Grether, S. Math Meth Oper Res (2015) 81: 137. doi:10.1007/s00186-014-0489-2

Abstract

In this short note we prove a conjecture posed in Cui et al. (Math Finance 22:346–378, 2012): Dynamic mean–variance problems in arbitrage-free, complete financial markets do not allow free cash flows. Moreover, we show by investigating a benchmark problem that this effect is due to the performance criterion and not due to the time inconsistency of the strategy.

Keywords

Mean–variance problem Time-inconsistency Market completeness Benchmark problem 

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Department of MathematicsKarlsruhe Institute of TechnologyKarlsruheGermany

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