Question: Exercise 9.2.11 Consider a single-period binomial model with two risky assets S1 and S2 and a riskless bond. In the next step, there are only

Exercise 9.2.11 Consider a single-period binomial model with two risky assets S1 and S2 and a riskless bond. In the next step, there are only two states for the risky assets, (S1u1, S2u2) and (S1d1, S2d2). Show that this model does not admit a riskneutral probability for certain u1, u2, d1, d2, and R. (Hence it is not arbitrage free.)

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