Hi, I got a question which I cant find a solution for. It is no homework but preparation for an exam and I cannot find the solution.
For 1 firm price and up state and low state given, for the other firm only up state and low state given Up or down state are equally likely! The economic state factor is 0.2 and -0.2 for up and down state, respectively.
Risk Free Firm 1 Firm 2
Sunny (Up) 101 126 51
Rainy (down) 101 84 131
price 100 100 ?
- Calculate fair price of firm 2 if no arbitrage / law of one price holds?
I have been thinking about how to tackle this for hours now but cant find the solution. Anyone wanna help?