Homework Assignment 5 - Solutions 2021 - W

No Unauthorized Online Sharing at CourseHero or Other Platforms!
Unauthorized Use Or Sharing Can Be Subject To Legal Action!

⎞
2 � 2 ⎟
8⎠
⎞
2 �� 2 ⎟
4 4⎠
27 15
1 5
2 4�1⎞
5 ⎟
4⎟
9⎠
3
1
� �
4�2�
3 3
5 1
− −
−
2 33
51
22
4 21
3
4
4�5
33
21
1 3
0 1
8
3
5
0 0 −
4 2
�2 3
3 4
1
4 2
⎛0 2
5
2
4 2
⎛0 2
4
�0
3
⎛1
⎜0
0
⎜
⎝
0
⎜
⎝
⎝
Question 2 (𝑅𝑅𝑖𝑖 stands for row i)
𝑅𝑅1 ÷ 4; 𝑅𝑅2 ÷ 2; 𝑅𝑅3 ÷ �− 8 �:
We get the following system:

27
�
10
0
−16 17
3�
−45 9
11
21
10
5
(1) 𝐴𝐴𝐴𝐴 = � 2
(2) 𝐴𝐴𝐴𝐴 = �
Question 1
𝑅𝑅3 − 4 𝑅𝑅2 :
𝑅𝑅2 − 2 𝑅𝑅1 :
𝑅𝑅3 − 4 𝑅𝑅1 :
1
5
(1)
�0 5 −16� 215 �
�0 5 −16�−215�
− �−43�
5 −16�215�
3
4
0 5 −16 −215
�3 2 −1� 25 �
9 185
16 80
9 185
5 80
80
80
𝑥𝑥1 + 𝑥𝑥2 + 𝑥𝑥3 =
5 0
0
1 −1 5 80
1
4
𝑥𝑥2 + 𝑥𝑥3 =
4
9
5
9
5
9
5
9
3
4
𝑥𝑥2 = −
0
5
0
𝑥𝑥3 =
𝑥𝑥3 =
𝑥𝑥1 =

5
4
−1
5 0
1 −1
0
1 −1
1 −1
1
0
1
2
0 0
1
�0
5
�0
0
Solving the above system:
𝑅𝑅2 − 3𝑅𝑅1 :
𝑅𝑅3 − 5𝑅𝑅1 :
𝑅𝑅3 − 𝑅𝑅2 :
𝑅𝑅2 ÷ 5:
(2)
⎛ 5⎞
𝑥𝑥 = �−43� + 𝑠𝑠 ⎜ 16 ⎟
⎝ 1 ⎠
𝑥𝑥1 − 𝑥𝑥2 + 5𝑥𝑥3 = 80
9
𝑥𝑥 = −43
5
𝑠𝑠
−
16
𝑥𝑥1 = 37 − 𝑠𝑠
5
9
5
𝑥𝑥2 = −43 +
𝑥𝑥3 = 𝑠𝑠
Express the answer in the form 𝑥𝑥 = 𝑣𝑣 + 𝑠𝑠𝑠𝑠:

5 3

16
37
0
𝑥𝑥2 −


�3 −1 −1� 5 �
2 �7�
2 �7�
3𝑥𝑥1 − 𝑥𝑥2 − 𝑥𝑥3 = 5

2 �7�
6 38
6 38
8 28
2 7
3 −1 −1 5
3 −1 −1 5
−1 −1 5
0 0
𝑥𝑥2 + 2𝑥𝑥3 = 7
𝑥𝑥1 = 4 − 𝑠𝑠
𝑥𝑥2 = 7 − 2𝑠𝑠
1
3
1
0
0 1
6 2
�0 1
6 2
�0 1
0 4
3
�0
0

Swap 𝑅𝑅1 with 𝑅𝑅2 :
𝑅𝑅3 − 4𝑅𝑅2 :
𝑅𝑅3 − 2𝑅𝑅1 :
The system is inconsistent. The state prices 𝒑𝒑 does not exist. There is an arbitrage
The state prices 𝒑𝒑 does not exist if 𝑹𝑹𝑹𝑹 = 𝒖𝒖 is inconsistent (it has no solutions),

⎞
7 ⎟
10⎠
� ⎞
175 � 7 ⎟
1750 35⎠
� �
𝒀𝒀𝒀𝒀 = (0.15 0.32 0.27)

3
versa vice. Thus, we need to solve the following system:
1.37 1
13 1
299 1
1.37 1
13 1
175 7
1.16 1
1
1.37 1
1.1 �1�
0 −
1.05 1.52 1.37 1
1.02 1.24 1.16 1
13 �
�
𝒀𝒀 = (1 −1 0)
175
−
∑1 𝑦𝑦𝑖𝑖 = 0 and all entries in 𝒀𝒀𝒀𝒀 is positive.

175
1.2
18
1.52
1.02 1.24
175
207
875
175
18
1.52
18
1.52
0
−
−
� 0.9
1.05
An example of arbitrage portfolio:

1.05
� 0
1.05
⎛ 0
⎜ 0
0
⎜
⎝
portfolio for 𝑹𝑹.

𝑅𝑅3 − 10 𝑅𝑅2 :
𝑅𝑅3 − 35 𝑅𝑅1 :
𝑅𝑅2 − 7 𝑅𝑅1 :
34
23
6
3
20 × 1003 + 10 × 4 �1003 � = 60 �1003 � = 27849.53

= 20 − λ𝑘𝑘 −4 𝑙𝑙 2 = 0 … (1)
= 10 − λ𝑘𝑘 4 𝑙𝑙 −2 = 0 … (2)
= −𝑘𝑘 4 𝑙𝑙 2 + 200 = 0 … (3)
4
Form the Lagrangian: 𝐿𝐿 = 20𝑘𝑘 + 10𝑙𝑙 − λ �𝑘𝑘 4 𝑙𝑙 2 − 200�
𝑙𝑙 = 4 �1003 � = 1856.64
𝑘𝑘 = 1003 = 464.16
𝑘𝑘 4 (4𝑘𝑘)2 = 200
min 20𝑘𝑘 + 10𝑙𝑙
𝑙𝑙 = 4𝑘𝑘 … (4)
𝑘𝑘 4 𝑙𝑙 2 = 200
1 1
3 1
1 1 1
2𝑘𝑘
𝑙𝑙
1
2=
4
1 1
1
4
2
1 1
𝑘𝑘,𝑙𝑙
1
Therefore, the minimum cost is

𝜕𝜕𝜕𝜕
𝜕𝜕λ
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
4
Sub. 𝑙𝑙𝑙𝑙 = 1003 into (4):
Sub. (4) into (3):
4
Question 5
Subject to
(1)/(2):
FOC:
2 2 5
𝐶𝐶(𝑞𝑞) = 2𝑘𝑘 + 3𝑙𝑙 = 2 � � 𝑞𝑞 2 + 3 � � 𝑞𝑞 2
1
3
= 2 − λ 𝑘𝑘 −5 𝑙𝑙 5 = 0 … (1)
= 3 − λ 𝑘𝑘 5 𝑙𝑙 −5 = 0 … (2)
= −𝑘𝑘 5 𝑙𝑙 5 + 𝑞𝑞 = 0 … (3)
𝜋𝜋(𝑞𝑞) = 𝑝𝑝𝑝𝑝 − 2 �62 𝑞𝑞 2 �

1 5
𝑘𝑘 = � � 𝑞𝑞 2 … (5)
𝐶𝐶(𝑞𝑞) = 2 �62 𝑞𝑞 2 �
3 2 5
Form the Lagrangian: 𝐿𝐿 = 2𝑘𝑘 + 3𝑙𝑙 − λ �𝑘𝑘 5 𝑙𝑙 5 − 𝑞𝑞�
1 5
= 𝑞𝑞
2 3 2 5
𝑙𝑙 = � � 𝑞𝑞 2
𝑙𝑙 = 𝑘𝑘 … (4)
� � 𝑘𝑘 5 = 𝑞𝑞
min 2𝑘𝑘 + 3𝑙𝑙
2 2 5
𝑙𝑙 = � � 𝑞𝑞 2
1
𝑘𝑘 5 𝑙𝑙 5 = 𝑞𝑞
1 41
1 1 4
1
3 2 5
2
1
1
5
1 1
3 2
2 5 2
𝑘𝑘 5 � 𝑘𝑘�
3
1
1 1
The minimum cost of producing q units, is
For any fixed price p, the profit function is

2
3
1 1
1
1 2
3
5
2
𝑘𝑘,𝑙𝑙
3
𝜕𝜕𝜕𝜕
𝜕𝜕λ
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
Sub. (4) into (3):
Sub. (5) into (4):

Question 6
Subject to
(1)/(2):
FOC:
𝑆𝑆 = ��𝑞𝑞, 5√6𝑞𝑞 2 � |𝑞𝑞 ≤ 𝐿𝐿� ∪ �(𝐿𝐿, 𝑝𝑝)|𝑝𝑝 > 5√6𝑞𝑞 2 �
3

𝜋𝜋 ′(𝑞𝑞) = 𝑝𝑝 − 5√6𝑞𝑞 2 = 0

3
3
𝑝𝑝 = 5√6𝑞𝑞 2
It becomes a profit maximization problem. FOC:

3

The supply set:
= −0.12𝑥𝑥1 − 0.2𝑥𝑥2 + 1.8 = 0 … (3)
Form the Lagrangian: 𝐿𝐿 = 𝑥𝑥1 𝑥𝑥22 − λ(0.12𝑥𝑥1 + 0.2𝑥𝑥2 − 1.8)
= 2𝑥𝑥1 𝑥𝑥2 − 0.2λ = 0 … (2)

= 𝑥𝑥22 − 0.12λ = 0 … (1)
0.12𝑥𝑥1 + 0.2(1.2𝑥𝑥1 ) = 1.8

0.12𝑥𝑥1 + 0.2𝑥𝑥2 = 1.8
𝑥𝑥2 = 1.2𝑥𝑥1 … (4)

max 𝑥𝑥1 𝑥𝑥22
𝑥𝑥2 = 6
𝑥𝑥1 = 5
𝑥𝑥1 ,𝑥𝑥2
No Unauthorized Online Sharing at CourseHero or Other Platforms! 𝜕𝜕𝑥𝑥1

𝜕𝜕𝜕𝜕
𝜕𝜕𝑥𝑥2
𝜕𝜕𝜕𝜕
𝜕𝜕𝜕𝜕
𝜕𝜕λ
Sub. (4) into (3):

Question 6
Subject to
(1)/(2):
FOC:

Homework Assignment 5 - Solutions 2021 - W

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Homework Assignment 5 - Solutions 2021 - W

Uploaded by

Copyright:

Available Formats

No Unauthorized Online Sharing at CourseHero or Other Platforms!

Unauthorized Use Or Sharing Can Be Subject To Legal Action!

𝑅𝑅1 ÷ 4; 𝑅𝑅2 ÷ 2; 𝑅𝑅3 ÷ �− 8 �:

We get the following system:

Unauthorized Use Or Sharing Can Be Subject To Legal Action!

Express the answer in the form 𝑥𝑥 = 𝑣𝑣 + 𝑠𝑠𝑠𝑠:

Unauthorized Use Or Sharing Can Be Subject To Legal Action!

No Unauthorized Online Sharing at CourseHero or Other Platforms!

Solving the above system:

3𝑥𝑥1 − 𝑥𝑥2 − 𝑥𝑥3 = 5

We get the following system:

Solving the above system:

No Unauthorized Online Sharing at CourseHero or Other Platforms!

𝒀𝒀𝒀𝒀 = (0.15 0.32 0.27)

No Unauthorized Online Sharing at CourseHero or Other Platforms!

1.02 1.24 1.16 1

∑1 𝑦𝑦𝑖𝑖 = 0 and all entries in 𝒀𝒀𝒀𝒀 is positive.

An example of arbitrage portfolio:

portfolio for 𝑹𝑹.

20 × 1003 + 10 × 4 �1003 � = 60 �1003 � = 27849.53

= −𝑘𝑘 4 𝑙𝑙 2 + 200 = 0 … (3)

Therefore, the minimum cost is

Sub. (4) into (3):

𝜋𝜋(𝑞𝑞) = 𝑝𝑝𝑝𝑝 − 2 �62 𝑞𝑞 2 �

The minimum cost of producing q units, is

For any fixed price p, the profit function is

Sub. (4) into (3):

Sub. (5) into (4):

Unauthorized Use Or Sharing Can Be Subject To Legal Action!

No Unauthorized Online Sharing at CourseHero or Other Platforms!

Unauthorized Use Or Sharing Can Be Subject To Legal Action!

No Unauthorized Online Sharing at CourseHero or Other Platforms!

= 2𝑥𝑥1 𝑥𝑥2 − 0.2λ = 0 … (2)

0.12𝑥𝑥1 + 0.2(1.2𝑥𝑥1 ) = 1.8

𝑥𝑥2 = 1.2𝑥𝑥1 … (4)

No Unauthorized Online Sharing at CourseHero or Other Platforms! 𝜕𝜕𝑥𝑥1

Sub. (4) into (3):

You might also like