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
We already used it in the previous section. 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.
(Self financing strategy)