Show that the risk premium of a security with state contingent payoff |d n is given by

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Show that the risk premium of a security with state contingent payoff |d_n is given by Cov[M, d_n]. Use the relation

in the process.

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A First Course in Quantitative Finance

ISBN: 978-1108419574

1st edition

Authors: Thomas Mazzoni

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Question Posted: Feb 19, 2020 08:46 AM

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Show that the risk premium of a security with state contingent payoff |d n is given by

Question:

Cov[X, Y]= E[XY] – E[X\E[ Y]

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The risk premium of a security with state contingent payoff dn i...View the full answer

A First Course in Quantitative Finance

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