1. Financial Markets – Fall, 2019 – Oct 3, 2019

2. S1 S2 S3 State 1 – Great Economy Economy Now State 2 – Average Economy
State 3 – Financial & Economic Collapse

3. How does each asset perform in each state?
An Asset (Security) Is Defined Only By its “Payoff” in Each State

4. X1 X2 X3 s1 s2 s3 Definition of Securities p1,1 p1,1 p1,2 p1,3 p2,3
November 1, 2018

5. Riskless Assets in a Finite State World
Return $P
State 1 – Economy gets better Xi $P
State 2 – Economy gets worse $P
State 3 – Economy muddles along
November 1, 2018

6. The End