1. [12 marks] Single-period multi-state model. Consider a single-period market model M = (BS) on a finite sample space N = {w1, W2, W3}. We assume that the money market account B equals Bo = 1 and B1 = 4 and the stock price S = (S0, S1) satisfies So = 2.5 and Si = (18,10,2). The real-world probability P is such that P(wi) = Pi > 0 for i = 1, 2, 3. (c) Compute the arbitrage price To(X) using the risk-neutral valuation formula with an arbitrary martingale measure Q from M. 1. [12 marks] Single-period multi-state model. Consider a single-period market model M = (BS) on a finite sample space N = {w1, W2, W3}. We assume that the money market account B equals Bo = 1 and B1 = 4 and the stock price S = (S0, S1) satisfies So = 2.5 and Si = (18,10,2). The real-world probability P is such that P(wi) = Pi > 0 for i = 1, 2, 3. (c) Compute the arbitrage price To(X) using the risk-neutral valuation formula with an arbitrary martingale measure Q from M