Solution

Past exam of the mathematics course of the University of Cambridge / 2009 / iii / Paper 32 / 2 / Solution

= Binomial market
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At each period a risky asset in a binomial market has one of two returns, while the risk-free asset grows by a fixed factor. When the risk-free return lies strictly between the two stock returns, the market is arbitrage-free and complete.


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 Incoming links: Discrete-time binomial market