For Q a risk neutral measure define L(w) = Q(w)/ P(w) called the state price density. Prove the following about the risk premium: E(Rk) Rf = Cov(Rk, L) k = 1,..., N. (32)

Let (Ho, H1,..., HN) be an arbitrary trading strategy with initial invest- ment Vo> 0 leading to a portfolio payoff Vr with rate of return Ry, prove: E(Rv) R = Cov(Rv, L).