2. i) Consider an -period binomial model. Define Yn--oSi. Show that (S,,%), n = 0, 1, . . . . M is a two dimensional Markov process under the physi- cal/real world probability P. Hint: you have to show that for everyn 1,2...,N 1 and every function f = f(s,y) there exists a function g = g(s,y) such that ii) Consider an N-period binomial model. Give an example of a process Y,, n 0. 1. 'N which is both a martingale and a Markov process under risk neutral probability P. You should justify why your example is a martingale and a Markov process under P. Recall that a process Yn,n-0,1,... ,N is a martingale under P if for every n -0,1,... , N - 1 n n+1 8 points 2. i) Consider an -period binomial model. Define Yn--oSi. Show that (S,,%), n = 0, 1, . . . . M is a two dimensional Markov process under the physi- cal/real world probability P. Hint: you have to show that for everyn 1,2...,N 1 and every function f = f(s,y) there exists a function g = g(s,y) such that ii) Consider an N-period binomial model. Give an example of a process Y,, n 0. 1. 'N which is both a martingale and a Markov process under risk neutral probability P. You should justify why your example is a martingale and a Markov process under P. Recall that a process Yn,n-0,1,... ,N is a martingale under P if for every n -0,1,... , N - 1 n n+1 8 points