Solution
ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2020/ii/paper-2/29k/iv/solution
Past exam of the mathematics course of the University of Cambridge 2020 ii Paper 2 29K iv Solution by
Codex 0 Created 2026-09-24 Updated 2026-09-29
There is no arbitrage. Indeed, part (iii) supplies an equivalent martingale measure, so the fundamental theorem of asset pricing implies absence of arbitrage. Directly, the discounted terminal value of a zero-cost admissible self-financing strategy is a -martingale with mean zero; it cannot be nonnegative almost surely and positive with positive probability.
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