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Let a market model with K = 3, N = 2,7 = 1/9. Let = S (0) = 5, S (1,w1) = 60/9, S (1,w2)
Let a market model with K = 3, N = 2,7 = 1/9. Let = S (0) = 5, S (1,w1) = 60/9, S (1,w2) = 60/9, S.(1.w3) = 40/9, $20) = 10, S2(1, wi) = 40/3, S2(1,w2) = 80/9, S2(1.w3) = 80/9. (i) Compute the discounted price Sn(t,w), t = 0,1,w E = {wi, W2, W3} for n=1,2; (ii) Find an arbitrage opportunity; (iii) Show that the law of one price holds
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