{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture #3

Lecture #3 - Ec 136 Financial Economics Lecture 3 September...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Ec 136, Financial Economics Lecture 3 September 3
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Outline for today 1. Arbitrage. 2. Short selling. 3. Redundant assets and the law of one price. www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Readings for this week: BKM Chapter 3. Problem set 1 : due September 8, Tuesday, in class.
Background image of page 2
1. Arbitrage that is riskless in the following sense: 1. The opportunity never loses money today or tomorrow. 2. The opportunity makes money today, or it may make money tomorrow. Examples: 1. A package of 12 pencils sells for $1 today, 1 pencil sells for 10 cents today, there are no costs of packaging. 2. A package of 12 pencils sells for $1 today, and money can be borrowed at 5% interest. To- morrow 12 pencils will sell for either $1.05 or $1.20.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Tomorrow 12 pencils sell for $1.05 Today 12 pencils sell for $1.20
Background image of page 4
States and time Finance theory assumes that there are no arbi- trage opportunities, because they are eliminated so quickly that we never observe them. To explore this further, we need a formal way to think about time and uncertainty. Suppose that there are two dates, t = 0 and t = Asset 1
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 14

Lecture #3 - Ec 136 Financial Economics Lecture 3 September...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online