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10 3 (10+ 3 = 30 points) Consider a one-period model with the following initial price vector S, and price matrix D: 1 1 1
10 3 (10+ 3 = 30 points) Consider a one-period model with the following initial price vector S, and price matrix D: 1 1 1 So = D= 10 20 50 30 20 where a ER 1. Show that the market is not arbitrage-free when a = 10. Let a = 15. 2. Find the martingale probability. 3. For the option C = (10,20,0), find its replicating portfolio. 10 3 (10+ 3 = 30 points) Consider a one-period model with the following initial price vector S, and price matrix D: 1 1 1 So = D= 10 20 50 30 20 where a ER 1. Show that the market is not arbitrage-free when a = 10. Let a = 15. 2. Find the martingale probability. 3. For the option C = (10,20,0), find its replicating portfolio
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