he argument of the section
( Risk neutral measure
via Girsanov section) has local nature with respect to time. After we
advance to the next time moment the local dW-independence would be lost.
Hence, we would need to rebalance the portfolio. The rebalancing condition is
called "self-financing"
condition: | | (Self financing strategy) |
It means that the value of the portfolio changes only because the asset prices
change. There is no inflow of money. For this to be generically viable we need
to assume that the money market account is among components of
 .
Once we agree on such restriction we need to know that we will not run out of
money. In other words, we need to know that we can always install the dynamic
hedge. Such results are not yet included in these notes.
|
