Solution (source code)

= Solution

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 $\mathbb P^*$-martingale with mean zero; it cannot be nonnegative almost surely and positive with positive probability.