A General Benchmark Model for Stochastic Jump Sizes

Morten Christensen and Eckhard Platen ()

No 139, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper extends the benchmark framework of Platen (2002) by introducing a sequence of incomplete markets, having uncertainty driven by a Wiener process and a marked point process. By introducing an idealized market, in which all relevant economical variables are observed, but may not all be traded, a generalized growth optimal portfolio (GOP) is obtained and calculated explicitly. The problem of determining the GOP is solved in a general setting which extends existing treatments and provides a clear link to the market prices of risk. The connection between traded securities, arbitrage and market incompleteness is analyzed. This provides a framework for analyzing the degree of incompleteness associated with jump processes, a problem well-known from insurance and credit risk modeling. By staying under the empirical measure, the resulting benchmark model has potential advantages for various applications in finance and insurance.

Pages: 27 pages
Date: 2004-11-01
New Economics Papers: this item is included in nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as: Christensen, C. and Platen, E., 2005, "A General Benchmark Model for Stochastic Jump Sizes", Stochastic Analysis and Applications, 23(5), 1017-1044.

Downloads: (external link)
http://www.qfrc.uts.edu.au/research/research_papers/rp139.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.qfrc.uts.edu.au/research/research_papers/rp139.pdf [301 Moved Permanently]--> http://www.uts.edu.au/node/51831 [301 Moved Permanently]--> https://www.uts.edu.au/node/51831)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:139

Access Statistics for this paper

More papers in Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().