Consider an economy with three risky assets and two dates (t-0,1) and three states at t-1....
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Consider an economy with three risky assets and two dates (t-0,1) and three states at t-1. Let [123] (1.4) X= 2 1 4 131 be the matrix of asset payoffs at t=1 and p the vector of asset prices at t=0. Suppose pi=2. (a) Is there an arbitrage? [2p] (b) Suppose p,-1.2. (c) (d) P= 1.8 P3 (e) If yes, find an arbitrage portfolio. [3p] 1 Does an arbitrage portfolio exist? [1p] Can you create a portfolio with payoff of (120, 190, 220) at t-1 and what is the t-0 price of such a portfolio? [4p] Determine the (implicit) risk free rate in this economy. [4p] Consider an economy with three risky assets and two dates (t-0,1) and three states at t-1. Let [123] (1.4) X= 2 1 4 131 be the matrix of asset payoffs at t=1 and p the vector of asset prices at t=0. Suppose pi=2. (a) Is there an arbitrage? [2p] (b) Suppose p,-1.2. (c) (d) P= 1.8 P3 (e) If yes, find an arbitrage portfolio. [3p] 1 Does an arbitrage portfolio exist? [1p] Can you create a portfolio with payoff of (120, 190, 220) at t-1 and what is the t-0 price of such a portfolio? [4p] Determine the (implicit) risk free rate in this economy. [4p]
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a Is there an arbitrage Lets check if there exists a portfolio with positive payoff and zero or n... View the full answer
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