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Suppose that there are three assets traded in the economy:A=(1,2,3),B= (1,1,1), andC= (2.5,4.5,6.5). Explain why the market is incomplete. Suppose thatP(A) = 2,P(B) = 1
Suppose that there are three assets traded in the economy:A=(1,2,3),B= (1,1,1), andC= (2.5,4.5,6.5).
- Explain why the market is incomplete.
- Suppose thatP(A) = 2,P(B) = 1 and P(C)=5. Explain why the principle of no-arbitrage is violated in this economy? Assume that you can buy and/or sell integer multiples of the three assets. Can you design a trading stragtegy that will generate sure profit?
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Managerial Economics and Business Strategy
Authors: Michael R. baye
7th Edition
978-0073375960, 71267441, 73375969, 978-0071267441
