1. Consider the following discrete time one-period market model. The savings account is $1 at time 0 and $1.2 at time 1. The stock price is given by So = 1 and S1 = & where & is a random variable taking two possible values 1.3 and 0.8, each with positive probability. (a) Define what is meant by an equivalent martingale measure (EMM). Find, with proof, the EMM of this model. Does this model have arbitrage op- portunities? (b) Consider a put option with exercise price K = 1 that expires at time 1. Find the replicating portfolio for this put option. (c) Compute the time 0 price of this put option. (d) If the savings account at time 1 is $1.3 instead, does the model have an EMM? 1. Consider the following discrete time one-period market model. The savings account is $1 at time 0 and $1.2 at time 1. The stock price is given by So = 1 and S1 = & where & is a random variable taking two possible values 1.3 and 0.8, each with positive probability. (a) Define what is meant by an equivalent martingale measure (EMM). Find, with proof, the EMM of this model. Does this model have arbitrage op- portunities? (b) Consider a put option with exercise price K = 1 that expires at time 1. Find the replicating portfolio for this put option. (c) Compute the time 0 price of this put option. (d) If the savings account at time 1 is $1.3 instead, does the model have an EMM