Suppose the world is in 2 periods where market prices are available at the start of each period at time t=0 and t=1. in other words, the 2 periods are [0,1) and (1,2]. Suppose a trader at t=0 is uncertain about the future state s of the world at t=1. he has a monetary endowment at t=0 equivalent to $wo of his wealth at t=0, and invests the remainder $(wo-co) in 2 securities. After one period , at t=1, the securities realize payoffs that are then used to purchase his final consumption at t=1. after one more period, he dies. In this simple world of 3 future states, the known state structure Z at t=0 is as follows. The elements in the table show the state-contingent security return

Security

i states (probability p) 1 2

1:recession(0.2) 0.95 1.00

2:stable(0.5) 1.05 1.05

3:boom(0.3) 1.10 1.05

Suppose in the Z3*2 economy above, Arrow-Debreu certificates or elementary insurance claims are sold at t=0. certificate I (i=1,2,or 3) guarantees a payment of $1 if and only if state i occurs at t=1.

Would you be able to find the equilibrium prices to all 3 different certificates?

If instead, security 2 returns are(1.00 1.05 1.10)T, show how and if there is any arbitrage opportunities?

[此贴子已经被作者于2005-9-18 2:41:25编辑过]