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Question 4 : A one - step binomial market has assets x and Y with initial values x 0 and Y 0 . Terminal values
Question : A onestep binomial market has assets and with initial values and Terminal
values in the upstate are and Terminal values in the downstate are and Both branching
probabilities are strictly positive.
a Derive the conditions which guarantee that there is no arbitrage in this market.
b A third asset has values in the upstate and in the downstate. Find the value of such that
there is no arbitrage in the market.
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