Consider the one-period binomial to find the price of the

up and down securities. At time t = 0 the stock price is equal to S0. At time 1 is

either goes up or down. If it goes up, its price is S1 = u( S0), and if it goes down its

price is S = d (S0), where d < u. Let r denote the interest rate.

(a) Use a no arbitrage argument to show that u > 1 + r > d.