A benchmark model for financial markets

Eckhard Platen (eckhard.platen@uts.edu.au)

No 2001,52, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: This paper introduces a benchmark model for financial markets, which is based on the unique characterization of a benchmark portfolio that is chosen to be the growth optimal portfolio. The general structure of risk premia for asset prices and portfolios is derived. Furthermore, the short rate is obtained as an average of appreciation rates. The benchmark model is shown to be locally arbitrage free, however, it still permits some form of arbitrage. Finally, a subclass of arbitrage free contingent claim prices is derived.

Keywords: financial market model; contingent claim pricing; benchmark model; growth optimal portfolio; arbitrage amount (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (1)

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Working Paper: A Benchmark Model for Financial Markets (2001)
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