1.4. Find a general form for the risk-neutral probability in the model Sw(1) = 110 A(1) = 11 = S(0) = 80 SW2 (1) = 90 AO) = 10 A(1) = 11 Sw3 (1) = 75 A(1) = 11 Then show that any attainable derivative security H in this model must satisfy 3H*(1) 7H(1) + 4H" (1) = 0, and compute its fair price H(0) in terms of Hu2(1), H3 (1). Definition 1 A derivative security in such a single-step model is called attainable whenever there is a portfolio of stock and bond whose final value is equal to the payoff in all scenarios. Definition 2 By a fair price of a derivative security we understand a price that does not lead to an arbitrage opportunity. 1.4. Find a general form for the risk-neutral probability in the model Sw(1) = 110 A(1) = 11 = S(0) = 80 SW2 (1) = 90 AO) = 10 A(1) = 11 Sw3 (1) = 75 A(1) = 11 Then show that any attainable derivative security H in this model must satisfy 3H*(1) 7H(1) + 4H" (1) = 0, and compute its fair price H(0) in terms of Hu2(1), H3 (1). Definition 1 A derivative security in such a single-step model is called attainable whenever there is a portfolio of stock and bond whose final value is equal to the payoff in all scenarios. Definition 2 By a fair price of a derivative security we understand a price that does not lead to an arbitrage opportunity