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Kindly help in solving the problem below (i) A risky asset has value A at time . A probability measure R is defined so that

Kindly help in solving the problem below

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(i) A risky asset has value A at time . A probability measure R is defined so that Av is an R-martingale, where v is calculated using the risk-free interest rate. Explain why R can be described as a risk-neutral probability measure. [2] (ii) Let X, = VER C F, . where C is a discrete random variable occurring at time 7 > t. Prove that X, is an R-martingale. [2] Hint: if X is a discrete random variable and Y is a vector of random variables, then E [= [XY] ]=E[x]. (iii) Stating any results that you use, deduce that O, is previsible, where dx, - 0,dD, , where D, = A,v . [2] [Total 6]

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