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.
Correct Answer:
Verified
Correct Answer:
Verified
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