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consider an economy with three states the

Consider an economy with three states. The following set of stocks is traded:

x₁=(2,2,0) x₂=(1,0,3) x₃=(0,2,4).

The t=0 prices of these stocks are given as follows

(p₁, p₂, p₃) = (1, 1, 1).

(a) Is there an arbitrage?

(b) Suppose an investment firm sells options. What is the price of a call option on stock 1 with exercise price E=1? What is the price of a put option on stock 2 with exercise price E=2.

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Microeconomics: consider an economy with three states the

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Microeconomics: consider an economy with three states the

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