Pure securities and asset pricing under uncertainty:

a.What is a "pure security" and why are they important?

We have derived the price of the pure security as (this is also in your book):

=(1)(1()). 1+ 1+()

1. Explain the elements that define pure security prices in terms of what economic factors will influence them.
2. What are the assumptions that need to hold in order for this price to be unique?
3. What implications does this pricing equation for pure securities imply about other,
4. more realistic, securities that might trade in the market?

Answer rating: 100% (QA)

A pure security is a financial instrument that provides a payoff contingent solely on the outcome of a specific event or state of the world Pure secur... View the full answer