Find all possible risk-neutral probability measures

Reference no: EM131001366

Consider the financial market with N = 1, M = 1, r = 0, S₁(0) = 100, S₁(1) = 130, 110, or 80, all with positive probability.

(a) Find all possible risk-neutral probability measures.

(b) Consider a 1-year call option with a strike price of 100. (This is known as an ‘at-the-money' option). Find the range of possible prices for this option that will avoid arbitrage.

Reference no: EM131001366

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