represented as a payoff vector with one element for each state of the world, e.g. (payoff if heads, payoff if tails). So a bet on heads can be represented as ($1, -$1) and a bet on tails can be represented as (-$1, $1). Notice that by placing one bet on heads and one bet on tails, you have a state-contingent claim of ($0, $0); that is, the payoff is the same regardless of which state of the world occurs.

Dynamically-complete market

In order for a market to be complete, it must be possible to instantaneously enter into any position

1.Previous
3.Next