Question: Consider a nite market model with T = 2 , = { 1 , 2 , 3 , 4 , 5 } , andP (

Consider a nite market model with T =2,={1,2,3,4,5}, andP ({i})>0 for i =1,...,5. Suppose there are two assets, a riskless assetwith price process S 0={S 0t,t =0,1,2} where S 0t =(1+ r)tfor t =0,1,2,and some r 0, and a risky asset with price process S 1={S 1t,t =0,1,2}whereS 10(1)=5, S 11(1)=8, S 12(1)=9S 10(2)=5, S 11(2)=8, S 12(2)=7S 10(3)=5, S 11(3)=4, S 12(3)=6S 10(4)=5, S 11(4)=4, S 12(4)=5S 10(5)=5, S 11(5)=4, S 12(5)=2.Let F 0={,}, F 1= {S 10,S 11} and F 2= {S 10,S 11,S 12}.(a) Draw a tree to indicate the possible paths followed by the riskyasset price process S 1.(b) Suppose r =0.1. Is there an equivalent martingale measure for thismodel? If there is one, is it unique? If there is not one, demonstratean arbitrage opportunity. What are the answers to the last threequestions if r =1

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