Black-Scholes Derivation — Portfolio Replication Argument

Source: https://www.slideshare.net/HerbMeiberger/berkchapter21optionvaluation

In order to understand the replication by portfolio argument, we first have to familiarise ourselves with the concept of the Standard Theory of Continuous Trading.

A. The Standard Theory of Continuous Trading

It assumes a fixed finite number of primary assets that are sold in the market: