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State Preference Theory/Pure Securities a. What is a pure security and why are they useful? We have derived the price of the pure security

State Preference Theory/Pure Securities a. What is a

State Preference Theory/Pure Securities a. What is a "pure security" and why are they useful? We have derived the price of the pure security as: Ps (+7) 1 (1 IT E(R)-r 1 + E (R) (R.)). b. Explain each of the elements of a pure security price (above) and explain the economic factors driving them. c. What are complete markets and why are they important to determining security prices? Give an example.

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