Arbitrage Pricing - Discrete Models
Overview
Models of Possible Worlds
{%
w = \begin{bmatrix}
w_1 \\
w_2 \\
w_3 \\
\end{bmatrix}
%}
{%
S = \begin{bmatrix}
S_1 \\
S_2 \\
S_3 \\
\end{bmatrix}
%}
{%
C = \begin{bmatrix}
C_1 \\
C_2 \\
C_3 \\
\end{bmatrix}
%}
The payout matrix is listed as the payouts for each asset in each state of the world.
Each row represents an asset, and each column is a state of the world.
D = {%
\begin{bmatrix}
d_{11} & d_{12} & d_{13} \\
d_{21} & d_{22} & d_{23}\\
d_{31} & d_{32} & d_{33} \\
\end{bmatrix}
%}
