Hi a quick question, Q4 (iii) Oct 07 paper - when you find dVt, in the bond part why do you get WtdBt + BtdWt, where W is units of bonds held at time t? Is this because Wt is not constant? If so, then how do you show the self financing condition given that the number of stock & cash units depend on time? i.e. Vt = phi St + wtBt how do you show dVt = phi dst+w dBt I thought the number of units were assumed to be constant. Also when using ito's lemma, in the df/dt, is 't' the time since the start? and if so if you had exp(x(T-t)). then does df/dt = -exp(x(T-t) dt, treating T as a constant. Hope it makes sense!!!!!
