A Benchmark Framework for Risk Management

Eckhard Platen ()

No 113, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: The paper describes a general framework for contingent claim valuation for finance, insurance and general risk management. It considers security prices and portfolios with finite expected returns, where the growth optimal portfolio is taken as numeraire or benchmark. Benchmarked nonnegative wealth processes are shown to be supermartingales. Fair benchmarked values are conditional expectations of future benchmarked prices under the real world probability measure. Standard risk neutral and actuarial pricing formulas are obtained as special cases of fair pricing. The proposed benchmark framework covers the infinite time horizon and does not require the existence of an equivalent risk neutral pricing measure.

Keywords: benchmark model; growth optimal portfolio; fair pricing; risk neutral pricing; actuarial pricing (search for similar items in EconPapers)
JEL-codes: D52 G10 G13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2003-11-01
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published as: PLaten, E., 2004, "A Benchmark Framework for Risk Management", In: Stochastic Processes and Applications to Mathematical Finance, 305-335, Proceedings of the Ritsumeikan International Symposium, World Scientific.

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Chapter: A Benchmark Framework for Risk Management (2004)
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