Consider a one-step binomial model for two no-arbitrage assets X and Y with parameters 0 (a) Compute

Consider a one-step binomial model for two no-arbitrage
assets X and Y with parameters 0

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(a) Compute the price of a contract that pays off V1 =
I(ω = H) · Y1 (in terms of a reference asset Y , and the
probability measure P Y ).

(b) Find the hedging portfolio P0 for this contract,
i.e., determine ∆X(0) and ∆Y (0) such that

With

(c) Compute the price of a contract that pays off U1 =
I(ω = H) · X1 (in terms of a reference asset X, and the
probability measure P X).

(d) Find the hedging portfolio P0 for this
contract, i.e., determine ∆X(0) and ∆Y (0) such that

 

With