In this section, the notation is different from elsewhere in the book. We consider a derivative’s price at a general time t (not at time zero). If T is the maturity date, the time to maturity is .
The stock price process we are assuming is the one we developed in Section 14.3:
Suppose that f is the price of a call option or other derivative contingent on S. The variable f must be some function of S and t. Hence, from equation (14.14),
where Δf and Δ ...