This paper considers a class of incomplete financial market models with security price processes that exhibit intensity based jumps. The benchmark or numeraire is chosen to be the growth optimal portfolio. Portfolio values, when expressed in units of the benchmark, are local martingales. In...

This paper proposes an approach to the intraday analysis of diversified world stock accumulation indices. The growth optimal portfolio (GOP) is used as reference unit or benchmark in a continuous financial market model. Diversified portfolios, covering the world stock market, are constructed and...

This paper introduces a benchmark approach for the modelling of continuous, complete financial markets when an equivalent risk neutral measure does not exist. This approach is based on the unique characterization of a benchmark portfolio, the growth optimal portfolio, which is obtained via a...

In financial modelling, filtering and other areas the underlying dynamics are often specified via stochastic differential equations (SDEs) of jump-diffusion type. The class of jump-diffusion SDEs that admits explicit solutions is rather limited. Consequently, there is a need for the systematic...

Monetary policy has pursued the concept of inflation targeting. This has been implemented in many countries. Here interest rates are supposed to respond to an inflation gap and output gap. Despite long term continuing growth of the world financial assets, recently, monetary policy, in particular...

The aim of this paper is to document some empirical facts related to log-returns of diversified world stock indices when these are denominated in different currencies. Motivated by earlier results, we have obtained the estimated distribution of log-returns for a range of world stock indices over...

This paper uses an alternative, parsimonious stochastic volatility model to describe the dynamics of a currency market for the pricing and hedging of derivatives. Time transformed squared Bessel processes are the basic driving factors of the minimal market model. The time transformation is...

The vast majority of models that decompose the bid/ask spread assume the quote-driven, specialist structure of the NYSE. This paper critically evaluates these models to construct a model specific for an electronic order-driven exchange. The model not only captures adverse selection and the...

This paper considers a modification of the well-known constant elasticity of variance model where it is used to model the growth optimal portfolio. It is shown taht, for this application, there is no equivalent risk neutral pricing methodology fails. However, a consistent pricing and hedging...

This paper describes a two-factor model for a diversifed index that attempts to explain both the leverage effect and the implied volatility skews that are characteristic of index options. Our formulation is based on an analysis of the growth optimal portfolio and a corresponding random market...