Benchmark Model with Intensity Based Jumps

Eckhard Platen ()

No 81, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper proposes a class of financial market models with security price processes that exhibit intensity based jumps. Primary security account prices, when expressed in units of the benchmark, turn out to be local martingales. The benchmark model exludes, so called, benchmark arbitrage but permits arbitrage amounts, which arise for benchmarked price processes that are strict local martingales. In the proposed framework, generally, an equivalent risk neutral measure does not exist. Benchmarked fair derivative prices are obtained as conditional expectations of future benchmarked prices under the real world probability measure.

Keywords: benchmark model; jump diffusions; growth optimal portfolio; fair pricing; arbitrage amounts, insurance (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-06-01
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Citations: View citations in EconPapers (10)

Published as: Platen, E., 2004, "A Class of Complete Benchmark Models with Intensity-Based Jumps", Journal of Applied Probability, 41(1), 19-34.

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