2. Let h(t) be a portfolio consisting of n stocks S(t), with hi(t) being the number...
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2. Let h(t) be a portfolio consisting of n stocks S(t), with hi(t) being the number of stock i with price Si(t) which satisfy the Ito Process, with the value V(t) = h(t)TS(t). (a) What does it mean that this portfolio is self financing. (b) Using Ito's lemma show that dV (t) = dh(t)TS(t) +h(t)TdS(t) + dh(t)dS(t) Give the dynamics of the self financing portfolio. 2. Let h(t) be a portfolio consisting of n stocks S(t), with hi(t) being the number of stock i with price Si(t) which satisfy the Ito Process, with the value V(t) = h(t)TS(t). (a) What does it mean that this portfolio is self financing. (b) Using Ito's lemma show that dV (t) = dh(t)TS(t) +h(t)TdS(t) + dh(t)dS(t) Give the dynamics of the self financing portfolio.
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