Consider an economy with two dates t01 and at t1 there are, Financial Management

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Consider an economy with two dates t01 and at t1 there are

Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following three stocks are traded: x1=(10,0,30) x2=(0,20,40) x3=(20,20,0) The t=0 prices of these stocks are given as follows (p1, p2, p3)=(12, 14, 8)

(a) Is there an arbitrage?

Suppose an investment firm sells options

(b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=8?

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Financial Management: Consider an economy with two dates t01 and at t1 there are

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Financial Management: Consider an economy with two dates t01 and at t1 there are

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