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Portfolios

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  • May 29, 2020
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Self-Financing Portfolio

A portfolio (hedge portfolio) that is characterized by specific features such as zero investment and risk-free exposure (inflows and outflows of capital are not allowed). Therefore, such a portfolio needs no additional investments. Changes in the value of this portfolio come from gains made from component assets such as an asset and a money market account. The asset can be traded and resulting profit will be invested in the money-market account. Another example is a collection of options, stocks, and bonds: the option may be replicated in a synthetic manner using the self-financing trading strategy that builds on only stocks and bonds.


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