Arbitrage Pricing Theory: The returns in an economy with an infinite number of assets are given...
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Arbitrage Pricing Theory: The returns in an economy with an infinite number of assets are given by: 7₁ = 1, 11 10 + ²n-11 n 22. Here, the first asset is risk-free, with (normalized) returns equal to 1, whereas the other assets are risky, and en are i.i.d. random variables such that en 2-1, P (en <-) > 0, Elen] = 0, and Var(en) = ². Consider the sequence of portfolios {w}N, N=1,..., where w contains N assets: n = 1, 2≤ n ≤ N₂ n > N. -N, 1, 0 1. Is there a portfolio, w, for some specific N that constitutes a (pure) arbitrage opportunity? 2. Show that the sequence w, N 1,..., does not constitute an asymptotic arbitrage oppor- tunity. 3. Construct a modified sequence of portfolios, v YNw, where (7N)N is a sequence of positive numbers, such that (NN does constitute an asymptotic arbitrage opportunity. Arbitrage Pricing Theory: The returns in an economy with an infinite number of assets are given by: 7₁ = 1, 11 10 + ²n-11 n 22. Here, the first asset is risk-free, with (normalized) returns equal to 1, whereas the other assets are risky, and en are i.i.d. random variables such that en 2-1, P (en <-) > 0, Elen] = 0, and Var(en) = ². Consider the sequence of portfolios {w}N, N=1,..., where w contains N assets: n = 1, 2≤ n ≤ N₂ n > N. -N, 1, 0 1. Is there a portfolio, w, for some specific N that constitutes a (pure) arbitrage opportunity? 2. Show that the sequence w, N 1,..., does not constitute an asymptotic arbitrage oppor- tunity. 3. Construct a modified sequence of portfolios, v YNw, where (7N)N is a sequence of positive numbers, such that (NN does constitute an asymptotic arbitrage opportunity.
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Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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