3 Consumption-based Model and Contingent Claims I Suppose there are three states of nature, S={1,2,3}, all of which have equal probability. Consider an investor that can freely buy and sell assets in the asset market. The investor is an expected utility maximizer with utility function u(c0)+E[u(c1)] and u(c)=logc. Suppose after making her utility-maximizing portfolio choice, the investor ends up consuming as described in the following table: We now expand the asset market by introducing a contingent claim for state s. How does the contingent claim price pc(s) have to be so that the investor does not change her optimal consumption decision? Provide an answer for each possible value of s(s=1,2,3). 3 Consumption-based Model and Contingent Claims I Suppose there are three states of nature, S={1,2,3}, all of which have equal probability. Consider an investor that can freely buy and sell assets in the asset market. The investor is an expected utility maximizer with utility function u(c0)+E[u(c1)] and u(c)=logc. Suppose after making her utility-maximizing portfolio choice, the investor ends up consuming as described in the following table: We now expand the asset market by introducing a contingent claim for state s. How does the contingent claim price pc(s) have to be so that the investor does not change her optimal consumption decision? Provide an answer for each possible value of s(s=1,2,3)