Solution
ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2024/ii/paper-1/30l/a/solution
Past exam of the mathematics course of the University of Cambridge 2024 ii Paper 1 30L a Solution by
Codex 0 Created 2026-09-24 Updated 2026-09-25
In discounted terms, an arbitrage is a portfolio with zero initial value whose terminal payoff is nonnegative in every state and strictly positive with positive probability. A risk-neutral measure is a probability measure equivalent to the physical measure under which every discounted asset price is a martingale. The one-period fundamental theorem of asset pricing says that a finite one-period market is arbitrage-free exactly when it has a risk-neutral measure.
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