PB = Exercise 3 Consider a financial economy with dates t can be traded. A has...
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PB = Exercise 3 Consider a financial economy with dates t can be traded. A has payoff v = (10, 10, 10) and price PA 10. C has payoff vc = (15, 9, 12) and price pc 12. = = 0,1 and S 3 states in t = 1. Three securities 10. B has payoff vB = = (21, 6, 3) and price = (a) State whether the market is complete and find the possible state prices. (b) Assume now that a put option on B with strike z = 15 is introduced. Use the absence of arbitrage principle to find the price of the put option. (c) Give the defintion of an arbitrage and find one when the price of the put option on B with strike z = 15 is twice as much of the one found in (b). PB = Exercise 3 Consider a financial economy with dates t can be traded. A has payoff v = (10, 10, 10) and price PA 10. C has payoff vc = (15, 9, 12) and price pc 12. = = 0,1 and S 3 states in t = 1. Three securities 10. B has payoff vB = = (21, 6, 3) and price = (a) State whether the market is complete and find the possible state prices. (b) Assume now that a put option on B with strike z = 15 is introduced. Use the absence of arbitrage principle to find the price of the put option. (c) Give the defintion of an arbitrage and find one when the price of the put option on B with strike z = 15 is twice as much of the one found in (b).
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