ECONOMICS Question

period by going up by u, of down by (1. Develop the analysis for the case in which 111. assets, one risky and one safe, and the risky asset in every period can change the price previous period by going up u, have a medium change, m, or go (1, with u > m > d. precisely: Consider rst the two period model. #1 Dene arbitrage opportunity #2 What are the conditions for existence of and A0? #3 What can you say of the martingale measure in this case? #4 Extend the analysis to the three periods model #5 Extend to the general case of T periods