In the final part of the video you write the equation for delta Pi = (the simplification of the portfolio)delta t. Please would you mind explaining why this is risk free please ? And also would you mind explaining how you formed the discrete black scholes equation at the end ?
It is risk free, because there is no randomness, so the delta portfolio value consists of delta t times something, which has no W(t) or any random term. I assume risk free means this.
In the final part of the video you write the equation for delta Pi = (the simplification of the portfolio)delta t. Please would you mind explaining why this is risk free please ? And also would you mind explaining how you formed the discrete black scholes equation at the end ?
It is risk free, because there is no randomness, so the delta portfolio value consists of delta t times something, which has no W(t) or any random term. I assume risk free means this.