question archive Imagine a one-period economy with two possible end-of-period states that are equally likely
Imagine a one-period economy with two possible end-of-period states that are equally likely
Subject:FinancePrice: Bought3
Imagine a one-period economy with two possible end-of-period states that are equally likely. Two assets are traded. Asset 1 has an initial price of 0.9 and pays off 0 in state 1 and 1 in state 2. Asset 2 has an initial price of 1.6 and gives a payoff of 1 in state 1 and a payoff 2 in state 2. 1. Does the law of one price hold? 2. Does the market free of arbitrage?
