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Exercise 2.3. Consider the following three single period market models. (1) =(1,2) with a non-risky asset of rate R=91 and one risky asset with prices
Exercise 2.3. Consider the following three single period market models. (1) =(1,2) with a non-risky asset of rate R=91 and one risky asset with prices S01=5,S11(1)=320,S11(2)=949. (2) =(1,2,3) with a non-risky asset of rate R=91 and one risky asset with prices S01=5,S1(1)=320,S11(2)=949,S11(3)=310. (3) =(1,2,3) with a non-risky asset of rate R=91 and two risky assets with prices S01=5,S11(1)=320,S11(2)=320,S11(3)=940, S02=10,S12(1)=340,S12(2)=980,S12(3)=980. Which of these models are arbitrage-free? For those that are, describe the set of risk-neutral measures, and for those that are not, find an arbitrage strategy. Exercise 2.3. Consider the following three single period market models. (1) =(1,2) with a non-risky asset of rate R=91 and one risky asset with prices S01=5,S11(1)=320,S11(2)=949. (2) =(1,2,3) with a non-risky asset of rate R=91 and one risky asset with prices S01=5,S1(1)=320,S11(2)=949,S11(3)=310. (3) =(1,2,3) with a non-risky asset of rate R=91 and two risky assets with prices S01=5,S11(1)=320,S11(2)=320,S11(3)=940, S02=10,S12(1)=340,S12(2)=980,S12(3)=980. Which of these models are arbitrage-free? For those that are, describe the set of risk-neutral measures, and for those that are not, find an arbitrage strategy
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