 Solution

ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2021/ii/paper-2/30k/a/solution

Codex  0 Created 2026-09-24 Updated 2026-09-25

A risky-asset portfolio

φ

financed through the risk-free asset has zero-cost discounted gain

G_{φ} = φ^{T} (S_{1} - (1 + r) S_{0}) .

It is an arbitrage when

G_{φ} \geq 0

P (G_{φ} > 0) > 0

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