Antibiotic resistance and market completeness

Academics and finance professionals often assume complete markets in solving economic valuation and other similar problems. For some practitioners and pure academics, such an assumption has been difficult to make. Ironically, the difficulty in making this assumption drive them into irrelevant and stylistic solutions to common problems. There are indications that the march to market completeness is accelerating. The recent announcement of an index that tracks antibiotic resistance across countries is an example of ever creative ways to reveal available information broadly and continuously. Financial instruments can be created based on such indexes and they can be traded in the market place.

Such indexes and tradable instruments can be created for a variety of information sources. More obvious ones such as terror and climate have been established for some time leading to futures trading in these expectations. They allow businesses to hedge certain risks and improve overall performance. Those who believe markets are bad, should consider the risk management and information advantages of these instruments. Any instrument that allows market participants to hedge against or speculate on uncertainty, provide economic value to society through better decisions and market efficiency.

More information indexes and associated tradable instruments will bring us closer to market completeness. This may cure insomnia for those worried about wrong assumptions in their economic models.