Assume that in a market, the pricing procedure (3.1.3) corresponds to the vector = (0.2, 0.03,
Question:
Assume that in a market, the pricing procedure (3.1.3) corresponds to the vector ψ = (0.2, 0.03, 0.07, 0.1, 0.2, 0.2).
(a) How many states of nature can an investor face in this market?
(b) Which states of nature do people consider in this case most likely, least likely?
(c) If an investor borrows $1000 today, how much should she/he return at the end of the period?
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a The number of states equals to the dimension of the vector t...View the full answer
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