What is the price vector p of the securities market

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Reference no: EM131277048

Finance Help (Please answer all a, b, c, d with show solution)

Suppose the prices of the contingent claims are both 1/2: p(c(s1))= p(c(s2))/2. The price of the third security is 4.

a) What is the payoff matrix X of the asset market? Is the market complete or incomplete? Why? Is there any redundant security?

b) What is the price vector p of the securities market?

c) The law of one price says that the securities with the same payoffs must have the same price. Does the LOOP hold here? Why or why not?

d) Find an arbitrage portfolio. Show that one can possibly receive some positive payoffs without any cost or risk using the arbitrage portfolio.

Reference no: EM131277048

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