A Benchmark Framework for Integrated Risk Management

Eckhard Platen ()

No 82, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: The paper describes a consistent, integrated framework for modeling and pricing in finance, insurance and other areas of risk management. The growth optimal portfolio is taken as a benchmark. In the resulting price system expected future benchmarked, nonnegative prices are not greater that the last observed benchmarked price. The resulting benchmark model does not permit the generation of wealth from zero initial capital or the systemtic outperformance of the benchmark. Benchmarked fair price processes are defined as best forecasts of their benchmarked future values. Risk neutral and actuarial pricing formulae are obtained as special cases. Certain arbitrage amounts can still be modeled in this framework.

Keywords: benchmarked model; growth optimal portfolio; fair pricing; actuarial pricing; benchmark arbitrage; arbitrage amount (search for similar items in EconPapers)
JEL-codes: D52 G10 G13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-06-01
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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