A Discrete Time Benchmark Approach for Finance and Insurance

Hans Buhlmann and Eckhard Platen ()

No 74, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper proposes an integrated appraoch to discrete time modelling in finance and insurance. This approach is based on the existence of a specific benchmark portfolio, known as the growth optimal portfolio. When used as numeraire, this portfolio ensures that all benchmarked price processes are super-martingales. A fair market is characterized in terms of the type of maximum that the optimal growth rate attains. In general, arbitrage amounts arise due to supermartingale property of benchmarked traded prices. No measure transformation is needed for the pricing of insurance policies and derivatives in a fair market.

Keywords: financial and insurance market model; benchmark approach; growth optimal portfolio; numeraire portfolio; arbitrage amount; fair pricing; unit linked insurance (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as: Buhlmann, H. and Platen, E., 2003, "A Discrete Time Benchmark Approach for Finance and Insurance", ASTIN Bulletin, 33(2), 153-172.

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