- #1

WMDhamnekar

MHB

- 376

- 28

Answer. Viable financial merket means the market without arbitrage opportunities. Let $q_1$ and $q_2$ be the amounts invested in stock 1 and stock 2 respectively. Since the initial value of portfolio is zero, we should have $-9.52q_1$ and $-4.76q_2$ in the bank account.So our portfolio value at time 1 for all possible states are

$V_1(\omega_1)=10.004q_1+1.002q_2$$V_1(\omega_2)=5.004q_1+1.002q_2$

$V_1(\omega_3)=-2.496q_1-0.998q_2$

Now how to find out arbitrage opportunities?