A tractable model for indices approximating the growth optimal portfolio
AbstractThe growth optimal portfolio (GOP) plays an important role in finance, where it serves as the numéraire 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 fits well the dynamics of a global diversified world equity index. This is confirmed when pricing and hedging various derivatives using this index.
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Bibliographic InfoArticle provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.
Volume (Year): 18 (2014)
Issue (Month): 1 (February)
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Web page: http://www.degruyter.com
Other versions of this item:
- Jan Baldeaux & Katja Ignatieva & Eckhard Platen, 2012. "A Tractable Model for Indices Approximating the Growth Optimal Portfolio," Research Paper Series 318, Quantitative Finance Research Centre, University of Technology, Sydney.
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