Equilibrium Price Definition of Terms Call Option on a Security

Running Head: Finance
Finance
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Finance
Definition of Terms
Equilibrium price can be defined as the market price in which the supplied goods are
totally equal to the goods in demand. When a graph of price against quantity is drawn, the point
at which supply and demand curves intersect is the equilibrium price.
A call option on a security is an agreement that provides the choice buyer the correct, to buy a
bond, commodity, a stock, but not limited to obligation. It gives the holder the chance to buy
hundred percent shares of an original stock at a given specific price. The underlying price is
called the strike price.
A put option on Security is a choice agreement that gives the owner the right to sell a definite
volume of an underlying security at a given price within a stipulated period of time.
We simply need to check whether D’Ψ = p has a positive solution.
D=[20 44 12
48 36 12 ]
[20 48
44 36
12 12 ][24
40
12 ] ¿
Ψ = [1 /4, 1/4, 1/2], so a state price vector exists. The equilibrium price measures, there is only
one unique EPM and because rf = 0, the EPM is equivalent to Ψ.
(a) A call option on security 1 with an exercise price of 25.