Consider an economy with three assets and two dates (t-0,1) and three states at t=1. Let [1 2 3 (1.4 X =| 2 4 p =|1.8 |1 3 1 P3 be the matrix of asset payoffs at t=1 and p the vector of asset prices at t=0. Suppose p;=2. (a) Is there an arbitrage? (b) If yes, find an arbitrage portfolio.
Consider an economy with three assets and two dates (t-0,1) and three states at t=1. Let [1 2 3 (1.4 X =| 2 4 p =|1.8 |1 3 1 P3 be the matrix of asset payoffs at t=1 and p the vector of asset prices at t=0. Suppose p;=2. (a) Is there an arbitrage? (b) If yes, find an arbitrage portfolio.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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