Glossary

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Locally riskfree asset

A self-financing portfolio h is locally risk-free if
dVh(t)=k(t) Vh(t)dt,
where k is an adapted process. If h is locally risk-free then k(t) should equal the short rate r(t) for all t in order to avoid arbitrage opportunities.

 

Questions: Magnus Wiktorsson
Last update: 2009 Nov 12 13:23:09. Validate: HTML CSS

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