Minimal Market Model

Eckhard Platen () and David Heath ()
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Eckhard Platen: University of Technology
David Heath: Australian National University

Chapter 13 in A Benchmark Approach to Quantitative Finance, 2006, pp 483-511 from Springer

Abstract: Abstract This chapter derives an alternative model for the long term dynamics of the GOP from basic economic arguments. The discounted GOP drift, which models the long term trend of the economy, is chosen as the key parameter process. This leads to the minimal market model with the discounted GOP forming a time transformed squared Bessel process of dimension four. Its dynamics allows us to explain various empirical stylized facts and other properties relating to the long term behavior of a world stock index.

Date: 2006
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DOI: 10.1007/978-3-540-47856-0_13

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