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2. Consider an economy with two dates, = 0 and = 1, and three states: bad, normal, and good. Three complex assets are traded: Asset
2. Consider an economy with two dates, = 0 and = 1, and three states: bad, normal, and good. Three complex assets are traded: Asset A, B, and C. Their payoff structures are listed as follows: Payoff of | Payoff of | Payoff of State | Asset A | Asset B | Asset C bad 1 0 (a) Use the information above to determine whether the market is complete. (b) If a risk-free bond (that pays out 1 dollar in every state) is introduced into the market, at what price will it be traded? (c) Asset A is like a stock, with payoff increasing the general performance of the economy. If a call option on Asset A with strike price 1.5 is infroduced into the market, at what price will it be traded? (d) A put option is a contract that gives the buyer the right, but not the obligation, to sell a share of stock at the strike price K at = 1 when the state realizes. If a put option on Asset A with strike price K = 3 is introduced into the market, at what price will it be traded
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