Suppose that there are three states at date 1, but only two traded securities with payoffs...
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Suppose that there are three states at date 1, but only two traded securities with payoffs y₁ = (1, 1, 1), and 32 = (0,3,5). The prices of these two securities are P1 = 1, and p2 = 2, respectively. What are the bounds for the value for a non-traded call option on the risky security with a strike of 2? What are the state prices at these bounds? Suppose that there are three states at date 1, but only two traded securities with payoffs y₁ = (1, 1, 1), and 32 = (0,3,5). The prices of these two securities are P1 = 1, and p2 = 2, respectively. What are the bounds for the value for a non-traded call option on the risky security with a strike of 2? What are the state prices at these bounds?
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