Consider an economy with two possible states of the world (with equal probabilities of occurrence) and a
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Consider an economy with two possible states of the world (with equal probabilities of occurrence) and a single traded asset with payoff \((1,1)\) and price \(p \in(0,1)\). Consider Problem (PO4) with the linear expected utility function \(u\left(x_{0}, x_{1}, x_{2}\right)=x_{0}+x_{1} / 2+x_{2} / 2\). Show that there are no arbitrage opportunities but, nevertheless, there does not exist an optimal portfolio.
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Related Book For 
Financial Markets Theory Equilibrium Efficiency And Information
ISBN: 9781447174042
2nd Edition
Authors: Emilio Barucci, Claudio Fontana
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