Probability [6] Let Is be the current price of a digital option that pays 1 if state

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Probability [6]

Let Is be the current price of a digital option that pays 1 if state s occurs. ps is the time 1 value of investing Is at time 0, ps

= Is

(l + r), where r is the one period risk free interest rate. Show that the sum over all states s, £) sps , sum to one.

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