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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. Theres
Suppose there are two states of nature in the future. In the asset market, there are the two contingent claims, one for each state. Theres a third security with payoffs x=(4,1). Suppose the prices of the contingent claims are both 1/2: p(c(s1))= p(c(s2))=1/2. The price of the third security is 3
- Find an arbitrage portfolio. Show that one can possibly receive some positive payoffs without any cost or risk using the arbitrage portfolio.
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