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The state prices $\psi_j$ represent the prices of Arrow-Debreu securities, which are monetary values and do not necessarily sum to 1. The transformed vector $q_j$ represents risk-neutral probabilities, obtained by multiplying each state price by the gross risk-free factor $(1+i)$.

Conditions: The market is a one-period finite-state model.; $\psi_j$ are the solved state prices (Arrow-Debreu security prices).; $i$ is the per-period risk-free interest rate.; $q_j$ is defined as $q_j = (1+i)\psi_j$.

The state prices $\psi_j$ represent the prices of Arrow-Debreu securities, which are monetary values and do not necessarily sum to 1. The transformed vector $q_j$ represents risk-neutral probabilities, obtained by multiplying each state price by the gross risk-free factor $(1+i)$.

Conditions: The market is a one-period finite-state model.; $\psi_j$ are the solved state prices (Arrow-Debreu security prices).; $i$ is the per-period risk-free interest rate.; $q_j$ is defined as $q_j = (1+i)\psi_j$.

You convert a state price vector into risk-neutral probabilities by multiplying each state price by the gross risk-free factor $(1+i)$, where $i$ is the per-period risk-free interest rate. This scaling transforms the monetary prices of Arrow-Debreu securities into a valid probability distribution that sums to 1.

Conditions: The state prices $\psi_j$ are already determined.; $i$ is the known per-period risk-free interest rate.; The market is a one-period finite-state model.

You convert a state price vector into risk-neutral probabilities by multiplying each state price by the gross risk-free factor $(1+i)$, where $i$ is the per-period risk-free interest rate. This scaling transforms the monetary prices of Arrow-Debreu securities into a valid probability distribution that sums to 1.

Conditions: The state prices $\psi_j$ are already determined.; $i$ is the known per-period risk-free interest rate.; The market is a one-period finite-state model.

An Arrow-Debreu security is a theoretical financial instrument that pays exactly 1 unit of currency in one specific state of the world and 0 in all other states. The state price vector is the collection of the current prices of all such Arrow-Debreu securities for the finite set of states in the market model.

Conditions: The market model has a finite set of states.; Payoffs are normalized to 1 in one state and 0 elsewhere.; The model is a one-period setting.

An Arrow-Debreu security is a theoretical financial instrument that pays exactly 1 unit of currency in one specific state of the world and 0 in all other states. The state price vector is the collection of the current prices of all such Arrow-Debreu securities for the finite set of states in the market model.

Conditions: The market model has a finite set of states.; Payoffs are normalized to 1 in one state and 0 elsewhere.; The model is a one-period setting.