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Complete markets do not allow free cash flow streams

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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.

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Authors and Affiliations

  1. Department of Mathematics, Karlsruhe Institute of Technology, 76128, Karlsruhe, Germany

    Nicole Bäuerle & Stefanie Grether

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  1. Nicole Bäuerle
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  2. Stefanie Grether
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Correspondence to Nicole Bäuerle.

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Bäuerle, N., Grether, S. Complete markets do not allow free cash flow streams. Math Meth Oper Res 81, 137–146 (2015). https://doi.org/10.1007/s00186-014-0489-2

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  • DOI: https://doi.org/10.1007/s00186-014-0489-2

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