Question: 1. Consider the sample space ( 1, 2, 3) and the probability measure giving each point weight 1/3. On this probability space consider the finite

1. Consider the sample space ( 1, 2, 3) and the probability measure giving each point weight 1/3. On this probability space consider the finite model with 1, SO = $9 = 1, S! = 2, and S1 (1) = 1, S1 (2) = 2, S1 (3) = 4. (a) This market is viable, so there is at least one EMM. Find all possible EMMs. (b) Compute V. (X ) and V_ (X ) for the contingent clair given by X (1) = 1, X(2) = 3, X (3) = 9. (c) Find a trading strategy = (), ) ) such thatV, () X and V.(Q) = V. (X). (d) Consider the contingent claim given by Y (1) = 2, Y (2) = 4, Y (3) = 8. Without actually finding a hedging strategy, show thatcan be replicated. [Hint: Use Corollary 3.5.2 on page 49 of the text.]

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