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The following market model St = S0e0.1(Btt) consist of the savings account t = e0.1t and the stock St, 0 t 1.

The following market model

St = S0e0.1(Bt−t)

consist of the savings account βt = e0.1t and the stock St, 0 ≤ t ≤ 1.

Decide whether the market model is free from arbitrage by using the First Fundamental Theorem of Asset Pricing.

If the model does not admit arbitrage explain how to obtain EMM. If the model admits arbitrage, suggest an arbitrage strategy.

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