# Is this financial market viable?

• MHB
• WMDhamnekar
In summary, the financial market in question has two risky stocks with initial values of $9.52 and$4.76 currency units. The simple interest is 5% during the period [0,1] and the stock values at time 1 can take three different values depending on the market states. The market viability is determined by the absence of arbitrage opportunities, which can be assessed by calculating the portfolio values for all possible states. The definition of "arbitrage opportunity" is a finance term and cannot be expected to be known by everyone.
WMDhamnekar
MHB
Consider a financial market with two risky stocks and such that values at t=0 $S^1_0= 9.52$ currency units and $S^2_0=4.76$ currency units. The simple interest is 5% during the period [0,1].We also assume that during the period time 1, $S^1_1, S^2_1$ can take three different values depending on the market states $\omega_1, \omega_2,\omega_3$. $S^1_1(\omega_1)=20$ currency units, $S^1_1(\omega_2)=15$ currency units, $S^1_1(\omega_3)=7.5$ currency units. $S^2_1(\omega_1)=6$ currency units, $S^2_1(\omega_2)=6$ currency units, $S^2_1(\omega_3)=4$ currency units. Is this market viable?
Answer. Viable financial merket means the market without arbitrage opportunities. Let $q_1$ and $q_2$ be the amounts invested in stock 1 and stock 2 respectively. Since the initial value of portfolio is zero, we should have $-9.52q_1$ and $-4.76q_2$ in the bank account.So our portfolio value at time 1 for all possible states are

$V_1(\omega_1)=10.004q_1+1.002q_2$$V_1(\omega_2)=5.004q_1+1.002q_2$

$V_1(\omega_3)=-2.496q_1-0.998q_2$

Now how to find out arbitrage opportunities?

What is the definition of "arbitrage opportunity"? That is a finance term, not mathematics so you cannot expect people here to know that.

Dhamnekar Winod said:
Now how to find out arbitrage opportunities?
Contact Warren Buffett :)

## 1. Is this financial market currently profitable?

The answer to this question depends on various factors such as the current economic climate, market trends, and the specific financial market in question. It is important to conduct thorough research and analysis to determine the current profitability of the market before making any investment decisions.

## 2. What are the risks associated with this financial market?

Every financial market carries a certain level of risk, and it is crucial to understand and evaluate these risks before investing. Some common risks associated with financial markets include market volatility, political and economic instability, and regulatory changes. It is important to carefully assess these risks and have a risk management strategy in place.

## 3. How does this financial market compare to others?

Comparing different financial markets can provide valuable insights and help in making informed investment decisions. Some factors to consider when comparing financial markets include their historical performance, level of risk, and growth potential. It is important to thoroughly research and analyze each market before making any comparisons.

## 4. What are the key factors that can impact the success of this financial market?

There are several factors that can impact the success of a financial market, such as economic conditions, government policies, and market trends. Additionally, the performance of individual companies and industries within the market can also play a significant role. It is important to stay updated on these factors and their potential impact on the market.

## 5. How can I determine the long-term viability of this financial market?

Assessing the long-term viability of a financial market involves analyzing various factors such as market trends, economic conditions, and the performance of individual companies. It is also important to consider the potential for growth and innovation within the market. Conducting thorough research and seeking expert opinions can help in determining the long-term viability of a financial market.