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3. Consider a one-period economy with two times, 0 and T. There are S=3 states and N=3 securities with payoffs D=233046122127101010 and prices p=[27,17,x]. Answer

3. Consider a one-period economy with two times, 0 and T. There are S=3 states and N=3 securities with payoffs D=233046122127101010 and prices p=[27,17,x]. Answer the following questions for two cases, x=7 and x=8. (a) Describe the set of all state-price vectors. (b) Describe the set of all risk neutral measures. (c) Is this market complete? Explain. (d) Does this market satisfy the Law of One Price? Explain. 1 (e) Does this market permit arbitrage opportunities? Explain. (f) If the market admits arbitrage, find an arbitrage strategy. Answers will vary

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