A benchmark model for financial markets

This paper introduces a benchmark model for financial markets, which is based on the unique characterization of a benchmark portfolio that is chosen to be the growth optimal portfolio. The general structure of risk premia for asset prices and portfolios is derived. Furthermore, the short rate is obtained as an average of appreciation rates. The benchmark model is shown to be locally arbitrage free, however, it still permits some form of arbitrage. Finally, a subclass of arbitrage free contingent claim prices is derived.

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Year of publication:	2001
Authors:	Platen, Eckhard
Publisher:	Berlin : Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
Subject:	financial market model \| contingent claim pricing \| benchmark model \| growth optimal portfolio \| arbitrage amount

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Series:	SFB 373 Discussion Paper ; 2001,52
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	725387351 [GVK] hdl:10419/62771 [Handle] RePEc:zbw:sfb373:200152 [RePEc]
Classification:	G10 - General Financial Markets. General ; G13 - Contingent Pricing; Futures Pricing
Source:	EconStor

Persistent link: https://www.econbiz.de/10010310423