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Suppose there are two states of nature in the future. In the asset market, there are the two contingent claims, one for each state. There's
Suppose there are two states of nature in the future. In the asset market, there are the two contingent claims, one for each state. There's a third security with payoffs x=(4,2). Suppose the prices of the contingent claims are both 1/2: p(c(s1))= p(c($2))=1/2. The price of the third security is 4. a) What is the payoff matrix X of the asset market? Is the market complete or incomplete? Why? Is there any redundant security? b) What is the price vector p of the securities market?
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