Which of the Following Is Not Sufficient for a Pricing

question 8

Multiple Choice

Which of the following is not sufficient for a pricing tree for risky bonds to be free of arbitrage?

• A)The existence of a risk-neutral pricing probability measure.
• B)The existence of a general equilibrium in the asset markets.
• C)All normalized (discounted)assets are martingales.
• D)On the tree,the gross risk-free one-period return is straddled by the return when rates move up and when rates move down.

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Definitions:

Switching Station

A facility in a telecommunications network that manages the routing and switching of signals between different parts of the network.

Thalamus

A major part of the brain located in the center of the brain, it acts as a relay station, processing and transmitting sensory information to the cerebral cortex.

Midbrain

A portion of the central nervous system associated with vision, hearing, motor control, sleep/wake, arousal (alertness), and temperature regulation.

Hypothalamus

A region of the brain that coordinates many activities including temperature regulation, hunger, and sleep.