ABSTRACT
This chapter constructs a general multi-asset discrete-time model with a finite state space. It describes all main components of a general multi-period model defined on a filtered probability space. A portfolio is referred as a combination of positions in several (or all) base assets. If the positions do not change as time passes by, then one speaks of a static portfolio. For a multi-period model, the Law of One Price states that any two self-financing strategies maturing at the same time and having the same terminal value have the same initial value. The first and second fundamental theorems of asset pricing for a multi-period model are formulated in exactly the same way as those for a single-period model. A useful version of a stochastic binomial model is a model with state-dependent returns.
