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Self-Financing Trading Strategies in Quantitative Finance

Article arXiv papers · Author: Chris Kenyon et al.
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Summary

This note addresses the meaning of a self-financing trading strategy in quantitative finance. It places the concept at the intersection of stochastic calculus and financial trading, where misunderstandings may arise. The document’s stated aim is to remind readers how self-financing works, making the topic relevant to modeling portfolio value as positions in traded assets change over time.

The description identifies foundational work by Harrison and Kreps, followed by a broader treatment by Harrison and Pliska. However, the supplied text does not give the definition, equations, examples, or a derivation using the Ito-Doeblin lemma named in the title. As a result, it signals the topic and its mathematical context but provides little detail about the actual exposition or its conclusions. Readers would need the full note to learn how the self-financing condition is formulated and applied.

Key ideas

  • Self-financing is a foundational concept in quantitative finance.
  • The topic connects trading strategies with stochastic calculus.
  • The note is intended to clarify a concept that practitioners may find uncertain.
  • The description cites foundational work by Harrison and Kreps and by Harrison and Pliska.
  • The supplied text does not include the note’s definition, derivation, or examples.

Tags

StatisticsPortfolio constructionDerivatives pricing
Full text
# Self-Financing Trading and the Ito-Doeblin Lemma


# Self-Financing Trading and the Ito-Doeblin Lemma









The objective of the note is to remind readers on how self-financing works in Quantitative Finance. The authors have observed continuing uncertainty on this issue which may be because it lies exactly at the intersection of stochastic calculus and finance. The concept of a self-financing trading strategy was originally, and carefully, introduced in (Harrison and Kreps 1979) and expanded very generally in (Harrison and Pliska 1981).

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.