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Mathematical Finance 1. (10 marks] Elementary market model. Consider a single-period two-state market...

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Finance

Mathematical Finance

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1. (10 marks] Elementary market model. Consider a single-period two-state market model M = (B, S) on a sample space 2 = {wi, w2} with Pwi) = p (0,1). We assume that T = 1, So >0 and 0 0. Show that the price Po admits the following representation Po = K(1+r)-1 (S1 0. (e) Take a strike K such that Sod0 and 0 0. Show that the price Po admits the following representation Po = K(1+r)-1 (S1 0. (e) Take a strike K such that Sod

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