A Discrete Time Counterpart of the Black-scholes Bond Replication Portfolio
نویسنده
چکیده
We construct a discrete time self-financing portfolio comprised of call options short and stock shares long which is riskless and grows at a fixed rate of return. It is also shown that when shorting periods tend to zero then so devised portfolio turns into the Black-Scholes bond replication. Unlike in standard approach the analysis presented here requires neither Ito Calculus nor solving the Heat Equation for option pricing.
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