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I need assistance with the following problem – Please include step by step calculations
a) What is the payoff matrix X of the asset market? Is the market complete or incomplete? Why? Is there any redundant security?
b) What is the price vector p of the securities market?
c) The law of one price says that the securities with the same payoffs must have the same price. Does the LOOP hold here? Why or why not?
d) Find an arbitrage portfolio. Show that one can possibly receive some positive payoffs without any cost or risk using the arbitrage portfolio.
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