Four Derivations of the Black Scholes PDE
نویسنده
چکیده
We have written S = S(t); B = B(t); V = V (t) and dW = dW (t) for notational convenience. We also assume the portfolios are self- nancing, which implies that changes in portfolio value are due to changes in the value of the three instruments, and nothing else. Under this setup, any of the instruments can be replicated by forming a replicating portfolio of the other two instruments, using the correct weights.
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