Assume a finite state economy with three assets whose payoff matrix is given by
|
X = |
$30 |
$20 |
$10 |
|
$20 |
$15 |
$0 |
- What are the payoffs of the third asset?
- Is the third asset redundant and why?
- Is the second asset redundant and why?
- Is the market complete?
- Suppose the prices of the three assets are $25, $17, and $8. Does the Law of One Price hold in this market?
- What should be the price of a new asset that provides payoffs of $20 or nothing in the two states?