In this problem, suppose we are in a version of the one-period binomial model where the symbols used have the meanings given in class.

This model will violate the no-arbitrage assumption

Suppose that 0 < 1 + r d < u.

Create a portfolio X0, 0 such that one of the following lists of conditions holds:

X0 = 0, X1 0, and either X1(H) > 0 or X1(T) > 0 X0 < 0 and X1 0