Timeline for What is the meaning of multiplying price of contingent claim with e.g consumption level?
Current License: CC BY-SA 4.0
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| when toggle format | what | by | license | comment | |
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| Oct 28, 2019 at 20:54 | vote | accept | Aqqqq | ||
| Oct 28, 2019 at 7:52 | comment | added | Magic is in the chain | Your income and consumption are expressed in terms of ‘money’. So you can compute their present value as you would for any payoff. If you have higher income in states which are more desirable, then surely that is worth more. Multiplying by state prices would reflect that. | |
| Oct 28, 2019 at 7:36 | comment | added | Aqqqq | Thank you for your answer. Would you mind if you clarify what is the interpretation of "tomorrow state contingent flows multiplied by the respective state contingent prices"? (I understand the meaning behind $\sum_s{pc(s) x(s)}$, but why multiply $pc(s)$ (which is about security) with income and consumption?) | |
| Oct 28, 2019 at 1:27 | history | answered | Magic is in the chain | CC BY-SA 4.0 |