Glossary

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Self financing portfolio

A self-financing portfolio is characterised by that all trades are financed by selling or buying assets in the portfolio. No money is withdrawn or inserted after the intial forming of the portfolio. Let {S(t)}, t≥0 be an N-dimensional price process.
  1. A portfolio {h(t)}, t≥0 is an N-dim adapted process.
  2. The corresponding value process {Vh(t)}, t≥0 is given by
    Vh(t)=ni=1 hi(t)Si(t)
  3. A portfolio is self-financing if
    Vh(t+Δ)-Vh(t)=ni=1 hi(t)(Si(t+Δ)-Si(t)) (discrete time)
    dVh(t)=ni=1 hi(t)dSi(t) (continuous time)

 

Questions: Magnus Wiktorsson
Last update: 2009 Nov 11 16:24:43. Validate: HTML CSS

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