233To remain riskless it must be frequently adjusted or “rebalanced”.In particular, we would have to rebalance continuously!However,we will obtain a riskless rate of return on our portfoliowhich by absence of arbitrage is equal to our riskless interest rate from the money market account.
This is the key element in theBS arguments and leads to theirpricing formulas.
Derivative securities: Options - Black-Scholes modelBlack-Scholes model: Main ideas