Assume a finite state economy with three assets whose payoff matrix is given by [30 20 X

Assume a finite state economy with three assets whose payoff matrix is given by

 

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[30 20 X = 20 15 10 0 a. Is the third asset redundant and why? b. Is the market complete? c. Suppose the prices of the three assets are $25, $17, and $8. Does the Law of One Price hold in this market? If not, what's your arbitrage strategy? d. What should be the price of a new asset that provides payoffs of $10 and $15 in each state, respectively? [30 20 X = 20 15 10 0 a. Is the third asset redundant and why? b. Is the market complete? c. Suppose the prices of the three assets are $25, $17, and $8. Does the Law of One Price hold in this market? If not, what's your arbitrage strategy? d. What should be the price of a new asset that provides payoffs of $10 and $15 in each state, respectively?

Answer rating: 100% (QA)

Answer a third asset is redundent and shows value of 100 so it ... View the full answer