Investment firm sells options, Managerial Economics

Let 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)  Assume 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.

Posted Date: 3/25/2013 2:46:45 AM | Location : United States







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