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

- September 24, 2021 /
- ecommerce Development, web development, Software Development, Online marketing, Magento, Ecommerce

Consider a one-step binomial model for two no-arbitrage

assets X and Y with parameters 0

Compute the price of the contract V using both martingale

measures P Y and P X.

Consider a two-step binomial model with general u > 1

> d > 0.

(a) Find the price and the hedging portfolio for a

contract V that pays of

Note that the price and the hedge do not depend on the

choice of parameters u and d.

(b) How can one lock an arbitrage opportunity if somebody

is offering to buy or to sell V0 for 1.05 × X_{0}?

(c) Determine the price and the hedge of a contract A

that pays of

using the parameters