D
dushyant kochar
Member
Let V (t, St ) be the value of this portfolio. That is: V(t, St ) = -f(t, St )+ df/ds*St
so
The pure investment gain over the period (t, t +dt] is the change in the value of
the minus one derivative plus the change in the value of the holding of df/ds units of the share. That is:
dV(t, St ) = -df(t,St )+ df/ds*dSt
then,
-df(t,St )+ df/ds*dSt=(-df/dt-1/2*d2f/ds2*var*St2)*dt
Note that this portfolio strategy is not self-financing. That is, the pure investment gain derived above is not equal to the instantaneous change in the value of the portfolio, dV (t St ) .
where ,
dSt =St(udt+o*dZt)
where St is the share price & f(t, St) is the derivative value
can anyone please explain me the underlined part ?thanks in advance
so
The pure investment gain over the period (t, t +dt] is the change in the value of
the minus one derivative plus the change in the value of the holding of df/ds units of the share. That is:
dV(t, St ) = -df(t,St )+ df/ds*dSt
then,
-df(t,St )+ df/ds*dSt=(-df/dt-1/2*d2f/ds2*var*St2)*dt
Note that this portfolio strategy is not self-financing. That is, the pure investment gain derived above is not equal to the instantaneous change in the value of the portfolio, dV (t St ) .
where ,
dSt =St(udt+o*dZt)
where St is the share price & f(t, St) is the derivative value
can anyone please explain me the underlined part ?thanks in advance