Let the stock price over one time periods be modelled by So = 1, S = {, where takes four values 1/2, 3/4, 1, 2. There is no interest rate 3 = 1. (a) State with reason whether this model admits arbitrage strategies. (b) Give two EMM in this model, Q and 22. (c) Describe the set of all EMM's. (d) Give an example of the claim X which can be replicated and give its replicating portfolio. Calculate its expected value under the two EMM's Q and Q2. (e) Can a call option with strike K = 1 be replicated? Calculate its expected value under the two EMM's Q and Q2.

2. Let the stock price over one time periods be modelled by S0=1,S1=, where takes four values 1/2,3/4,1,2. There is no interest rate =1. (a) State with reason whether this model admits arbitrage strategies. (b) Give two EMM in this model, Q1 and Q2. (c) Describe the set of all EMM's. (d) Give an example of the claim X which can be replicated and give its replicating portfolio. Calculate its expected value under the two EMM's Q1 and Q2. (e) Can a call option with strike K=1 be replicated? Calculate its expected value under the two EMM's Q1 and Q2