How Traders Fund Their Moves Without Borrowing

Ever thought about how traders keep their trades going without adding extra money? Welcome to the world of self-financing trading! This concept is a big deal in Quantitative Finance. It was first introduced by Harrison and Kreps in 1979 and expanded by Harrison and Pliska in 1981. In simple terms, self-financing means traders use their own funds and earnings from trades to keep up their strategy. They don't rely on loans. Why is this important? It helps us understand how risk and returns work in the financial markets. Each trade is a piece of a larger puzzle, helping to manage a portfolio. But it's not just about avoiding loans. Self-financing strategies also use a bit of luck, thanks to a cool mathematical rule called the Ito-Doeblin Lemma. This rule helps predict price moves. So, next time you hear about self-financing, remember it's smart money management and dealing with uncertainties in the market.