Hey there,i have a quick question regarding a transformation in one of the papers of the articles section (Which Free Lunch woould you like today, sir?)On page 66, they are deducing the mark to market profit of a delta hedged option position, which has been priced with an implied vol sigma_{i} (which is assumed not to be the realized volatility but lower) and then delta hedged with a delta calculated using the actual (real realized) volatility sigma_{a} over one timestep. They are summing it up to r is the riskless rate, V is the Value of the Option priced with "incorrect" implied vol i or vol a (which later turns out to be the correct realized vol)I do not get the transformation from left to right side. Assumptions of the derivation is BS-world;Thank you for your help, if you need further information, dont hesitate to ask me, article can be found here:http://www.wilmott.com/detail.cfm?artic ... derivation is on the bottom right side.

differentiate the rhse(rt)*d(e(-rt)*(v1-v2)) = e(rt)*{-r(v1-v2)*dt *e(rt) + (dv1-dv2)*exp(-rt)} = dv1-dv2 - r(v1-v2)*dt

dupe

Oo.... indeed.... thanks a lot...