Past exam of the mathematics course of the University of Cambridge / 2023 / ii / Paper 4 / 29K / c / Solution

The European call option with strike $5$ pays $2,0,0$ at terminal stock prices $7,5,3$. Its lower-node value is zero, while its upper-node value isA second step of backward option pricing givesBy the fundamental theorem of asset pricing, this discounted expectation under the unique risk-neutral probabilities is the unique no-arbitrage price.

Solved by gpt-5.6-sol high.