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kitttimothy55
kitttimothy55
19.03.2020 • 
Mathematics

Consider the sample space = f1; 2; 3g and the probability measure P giving each point weight 1=3. On this probability space consider the nite model with T = 1, S0 0 = S0 1 = 1, S1 0 = 2, and S1 1 (1) = 1; S1 1 (2) = 2; S1 1 (3) = 4: (a) This market is viable, so there is at least one EMM. Find all possible EMMs. (b) Compute V+(X) and V(X) for the contingent claim X given by X(1) = 1; X(2) = 3; X(3) = 9: (c) Find a trading strategy = (01 ; 11 ) such that V1() X and V0() = V+(X). (d) Consider the contingent claim Y given by Y (1) = 2; Y (2) = 4; Y (3) = 8:

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