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arxiv: 1510.00352 · v2 · pith:46K4YEELnew · submitted 2015-09-30 · 💱 q-fin.MF · nlin.CD

Retarded action principle and self-financing portfolio dynamics

classification 💱 q-fin.MF nlin.CD
keywords principleactiondynamicsportfolioretardedself-financingbasiscalled
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We derive a consistent differential representation for the dynamics of a self-financing portfolio for different hedging strategies. In the basis of the derivation there is the so called "retarded action principle", which represents the causality in the evolution of dependent stochastic variables. We demonstrate this principle on example of a vanilla and a storage option.

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