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A Tractable Model for Indices Approximating the Growth Optimal Portfolio

Jan Baldeaux, Katja Ignatieva and Eckhard Platen ()

No 318, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: The growth optimal portfolio (GOP) plays an important role in finance, where it serves as the numeraire portfolio, with respect to which contingent claims can be priced under the real world probability measure. This paper models the GOP using a time dependent constant elasticity of variance (TCEV) model. The TCEV model has high tractability for a range of derivative prices and ts well the dynamics of a global diversi ed world equity index. This is confirmed when pricing and hedging various derivatives using this index.

Keywords: growth optimal portfolio; constant elasticity of variance model; kernel estimation; diffusion coefficient function; derivative hedging (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-12-01
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Citations: View citations in EconPapers (6)

Published as: Baldeaux, J., Ignatieva, K. and Platen, E., 2012, "A Tractable Model for Indices Approximating the Growth Optimal Portfolio", Studies in Nonlinear Dynamics and Econometrics, 18(1), 1-21.

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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp318.pdf (application/pdf)

Related works:
Journal Article: A tractable model for indices approximating the growth optimal portfolio (2014) Downloads
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