easy · Quantitative Finance stochastic
In a complete market, a contingent claim X with maturity T is represented as X = V_0 + int_0^T H_s dS_s.
What does the term int_0^T H_s dS_s represent in financial terms?
- The time-decay (Theta) of the option's value over the contract's life.
- The cumulative gain or loss from a self-financing trading strategy H_s.
- The present value of the option's exercise strike price, K.
- The volatility drag incurred by the underlying asset's realized price variance.
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