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Intermediate Financial Theory, 3rd Edition by John B. Donaldson, Jean-Pierre Danthine

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image (10.29i)

This is equivalent to

1=Et[m˜t+1R˜t+1] (10.29ii)

image (10.29ii)

where R˜t+1image is the gross rate of return to ownership of the asset. Since Eq. (10.29ii) holds for each state st, it also holds unconditionally; we thus can also write

1=E[m˜R˜]

image

where E denotes the unconditional expectation. For any two assets i and j (to be viewed shortly as the ...

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