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Q7 Consider a market that has only 2 assets: a stock pays no dividend and the banking account, and nothing else. We model the stock
Q7 Consider a market that has only 2 assets: a stock pays no dividend and the banking account, and nothing else. We model the stock price by using a l-period binomial tree. The parameters are T, u, d, and r which is the continuous interest rate. State the no- arbitrage condition in such model. Also construct an arbitrage strategy if the condition is violated Hint: try to get some inspiration from the fundamental theorem of asset pricing
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