Consider a market with 3 risky assets and 3 states of nature. The one-period payoff matrix...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a market with 3 risky assets and 3 states of nature. The one-period payoff matrix is given by 4 3/2 5 Z= 2 7/3 2 1 4/3 3 where column i of Z represents the payoff vector of asset i. The price vector of these 3 asset is p= [6,4, 10]. (a.) Is the market arbitrage-free? (b.) Is the market complete? (c.) Determine the price in period zero of an asset with payoff vector in period 1 equal to [1,0, 3]'. Consider a market with 3 risky assets and 3 states of nature. The one-period payoff matrix is given by 4 3/2 5 Z= 2 7/3 2 1 4/3 3 where column i of Z represents the payoff vector of asset i. The price vector of these 3 asset is p= [6,4, 10]. (a.) Is the market arbitrage-free? (b.) Is the market complete? (c.) Determine the price in period zero of an asset with payoff vector in period 1 equal to [1,0, 3]'.
Expert Answer:
Answer rating: 100% (QA)
To determine whether the market is arbitragefree we need to check if there exist any portfolios that can generate a riskless profit If such portfolios exist then the market is not arbitragefree To det... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Reduced Row Echelon Form Determine whether each of the matrices given in Problems 1-3 is in RREF or not. If not explain which condition or conditions fail. Then use elementary row operations to...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Determine whether each relation defines y as a function of x. Give the domain. Identify any linear functions. y = |x|
-
A company provided the following information: Standard variable overhead rate (SVOR) per direct labor hour .... $4.50 Actual variable overhead rate (AVOR) per direct labor hour .... $4.52 Actual...
-
In 2023, Wilma Ways sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 Section 1231 gain on the sale of business furniture. The business...
-
Tandrin Aviation Holdings Ltd. agreed to sell a jet aircraft to Aero Toy Store, LLC, for \($31.75\) million. ATS paid a \($3\) million deposit to a third party with the balance due upon delivery....
-
Brockman Guitar Company is in the business of manufacturing top-quality, steel-string folk guitars. In recent years the company has experienced working capital problems resulting from the procurement...
-
Market Dynamics (10 Points) Between 1980 and 1990, the number of employed women grew sharply but the number of women employed as secretaries actually fell. There are two theories as to why this...
-
The file taxdata contains information from federal tax returns filed in 2007 for all counties in the United States (3,142 counties in total). Create a PivotTable in Excel to answer the following...
-
1 . Describe the function of the three branches of government. 2 . Describe common legal issues for behavioral health professionals. 3 . Describe the various roles of advanced practice nurses. 4 ....
-
Break-even analysis and customer lifetime value For the information given, rank the customers in terms of customer lifetime value. Use a discount rate of 6 percent and treat the average sales figures...
-
Taxpayer A and B are related parties. If taxpayer A purchased a machine for $10,000, fully depreciated it (i.e., claimed $10,000 of depreciation), and then sold the machine to taxpayer B for $15,000,...
-
Static and Actuals IS VERITAS Fountain Pens, LLC Income Statement (Static Budget and Actual Results) For the year ended December 31, 2022 / unit Static Budget Sales Variable Costs Cost of Goods Sold...
-
Paulo is using probability distribution to determine the time to use for a particular activity on his project. He estimates that if he puts his best workers on the task that they will finish in 8...
-
This link is anonymous and does not include my personal links. https://file.io/D2JRztypavpe Exception Handling The Java exception mechanism is a way of handling errors and exceptional circumstances...
-
You want to buy small condo in Toronto that requires a $400,000mortgage. You are a high risk borrowers so Royal Bank of Canadaamortizes the mortgage over 20 years at a rate of 7.00%/yr (noteinterest...
-
What are technical skills At what level are they most important and why?
-
Ulysses and Penelope are married and file separate returns for 2012. Penelope itemizes her deductions on her return. Ulysses' adjusted gross income was $17,400, his itemized deductions were $2,250,...
-
Tom has a successful business with $100,000 of income in 2012. He purchases one new asset in 2012, a new machine which is 7-year MACRS property and costs $25,000. If you are Tom's tax advisor, how...
-
Mallory Corporation has a calendar year-end. The corporation has paid estimated payments of $10,000 during 2012 but still owes an additional $5,000 for its 2012 tax year. a. When is the 2012 tax...
-
(a) An amount of substance equal to 2 kmols of an ideal gas at temperature \(T\) and pressure \(p\) is contained in a compartment. In an adjacent compartment is an amount of substance equal to \(1...
-
The exhaust gas from a two-stroke cycle compression-ignition engine is exhausted at an elevated pressure into a large chamber. The gas from the chamber is subsequently expanded in a turbine. If the...
-
The following data refer to an analysis of a dual combustion cycle with a gas having specific heats varying linearly with temperature: The pressure and temperature of the gas at the end of...
Study smarter with the SolutionInn App