Portfolio selection and asset pricing under a benchmark approach
AbstractThe paper presents classical and new results on portfolio optimization, as well as the fair pricing concept for derivative pricing under the benchmark approach. The growth optimal portfolio is shown to be a central object in a market model. It links asset pricing and portfolio optimization. The paper argues that the market portfolio is a proxy of the growth optimal portfolio. By choosing the drift of the discounted growth optimal portfolio as parameter process, one obtains a realistic theoretical market dynamics.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 370 (2006)
Issue (Month): 1 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Financial market modeling; Benchmark approach; Growth optimal portfolio; Portfolio optimization; Fair pricing; Minimal market model;
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