Chapter eleven Asset(资产) Markets
Chapter Eleven Asset (资产)Markets
Main issue No Arbitrage(套利) Condition
Main Issue No Arbitrage(套利) Condition
Assets An asset is a commodity that provides a flow of services over time E.g. a house, or a computer. A financial asset provides a flow of money over time -a security
Assets An asset is a commodity that provides a flow of services over time. E.g. a house, or a computer. A financial asset provides a flow of money over time -- a security
Assets Typically asset values are uncertain. Incorporating uncertainty is difficult at this stage so we will instead study assets assuming that we can see the future with perfect certainty
Assets Typically asset values are uncertain. Incorporating uncertainty is difficult at this stage so we will instead study assets assuming that we can see the future with perfect certainty
Arbitrage(套利) Arbitrage is trading for profit in commodities which are not used for consumption. E.g. buying and selling stockS, bonds, or stamps No uncertainty all profit opportunities will be found. What does this imply for prices over time?
Arbitrage (套利) Arbitrage is trading for profit in commodities which are not used for consumption. E.g. buying and selling stocks, bonds, or stamps. No uncertainty all profit opportunities will be found. What does this imply for prices over time?
Arbitrage The price today of an asset is po. Its rice tomorrow will be p, Should it be sold now? The rate-of-return from holding the asset is R-p1-P0 pO Le (1+R)p0=p1
Arbitrage The price today of an asset is p0 . Its price tomorrow will be p1 . Should it be sold now? The rate-of-return from holding the asset is I.e. R p p p = 1 − 0 0 (1 ) . + R p0 = p1
Arbitrage Sell the asset now for $po, put the money in the bank to earn interest at rate r and tomorrow you have (1+r)po
Arbitrage Sell the asset now for $p0 , put the money in the bank to earn interest at rate r and tomorrow you have (1 ) . + 0 r p
Arbitrage When is not selling best? When (1+R)p0>(1+r)p0 L.e. if the rate-or-return to holding the asset R>r the interest rate, then keep the asset. And if R<r then 1+R)p0<(1+r)p0 so sell now for $po
Arbitrage When is not selling best? When I.e. if the rate-or-return to holding the asset the interest rate, then keep the asset. And if then so sell now for $p0 . (1 ) (1 ) . + R p0 + 0 r p R r R r (1 ) (1 ) + R p0 + 0 r p
Arbitrage If all asset markets are in equilibrium then R=r for every asset Hence, for every asset, today's price po and tomorrow's price p, satisfy p1=(1+r)po
Arbitrage If all asset markets are in equilibrium then for every asset. Hence, for every asset, today’s price p0 and tomorrow’s price p1 satisfy R = r p1 = 1+ r p0 ( )
Arbitrage p1=(1+r)po L.e. tomorrow' s price is the future-value of todays price. Equivalently, p1 p0-1+r L e. today's price is the present-value of tomorrow's price
Arbitrage p1 = 1+ r p0 ( ) I.e. tomorrow’s price is the future-value of today’s price. Equivalently, p p r 0 1 1 = + . I.e. today’s price is the present-value of tomorrow’s price