While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement
"A market is incomplete if there are more sources of noise than tradeable assets"
This might work well as a rule of thumb but does not really explain the underlying consequences (e.g. what it actually means for the market participants) - also it doesn't aid in visualizing understanding the concept.
I tried to find a comprehensive and easily accessible reference on the topic online but was unsuccessfull. Thus I thought qaunt SE is the perfect place to colaborate on one!
Explain/Illustrate: What is an icomplete market in a quant finance sense ?
- examples on how a hedges might not work
- explanation via Arrow-Debtreu securities and exchange of risk
- reading suggestions/literature references
- how can a market be completed (e.g. introduction of a volatility index that can be traded etc.)