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Diversified Portfolios with Jumps in a Benchmark Framework

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Author Info
Eckhard Platen ()

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Abstract

This paper considers diversified portfolios in a sequence of jump diffusion market models. Conditions for the approximation of the growth optimal portfolio (GOP) by diversified portfolios are provided. Under realistic assumptions, it is shown that diversified portfolios approximate the GOP without requiring any major model specifications. This provides a basis for systematic use of diversified stock indices as proxies for the GOP in derivative pricing, risk management and portfolio optimization. Copyright Springer Science + Business Media, Inc. 2004

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File URL: http://hdl.handle.net/10.1007/s10690-005-4253-8
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Publisher Info
Article provided by Springer in its journal Asia-Pacific Financial Markets.

Volume (Year): 11 (2004)
Issue (Month): 1 (March)
Pages: 1-22
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:apfinm:v:11:y:2004:i:1:p:1-22

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Web page: http://springerlink.metapress.com/link.asp?id=102851

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Related research
Keywords: benchmark model; diversified portfolio; growth optimal portfolio;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Constantinides, George M, 1992. "A Theory of the Nominal Term Structure of Interest Rates," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(4), pages 531-52. [Downloadable!] (restricted)
  2. Wolfgang Breymann & Leah Kelly & Eckhard Platen, 2004. "Intraday Empirical Analysis and Modeling of Diversified World Stock Indices," Research Paper Series 125, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
    Other versions:
  3. Dirk Becherer, 2001. "The numeraire portfolio for unbounded semimartingales," Finance and Stochastics, Springer, vol. 5(3), pages 327-341. [Downloadable!] (restricted)
  4. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
  5. David Heath & Eckhard Platen, 2002. "Consistent Pricing and Hedging for a Modified Constant Elasticity of Variance Model," Research Paper Series 78, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
    Other versions:
  6. I. Bajeux-Besnainou, R. Portait, 1997. "The numeraire portfolio: a new perspective on financial theory," European Journal of Finance, Taylor and Francis Journals, vol. 3(4), pages 291-309, December. [Downloadable!] (restricted)
  7. Eckhard Platen & Gerhard Stahl, 2003. "A Structure for General and Specific Market Risk," Research Paper Series 91, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  8. Long, John Jr., 1990. "The numeraire portfolio," Journal of Financial Economics, Elsevier, vol. 26(1), pages 29-69, July. [Downloadable!] (restricted)
  9. Eckhard Platen, 2003. "Modeling the Volatility and Expected Value of a Diversified World Index," Research Paper Series 103, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  10. Eckhard Platen, 2001. "A Minimal Financial Market Model," Research Paper Series 48, Quantitative Finance Research Centre, University of Technology, Sydney.
    Other versions:
  11. Eckhard Platen, 2001. "Arbitrage in Continuous Complete Markets," Research Paper Series 72, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  12. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June. [Downloadable!] (restricted)
  13. Eckhard Platen, 2003. "A Benchmark Framework for Risk Management," Research Paper Series 113, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  14. Eckhard Platen, 2002. "Benchmark Model with Intensity Based Jumps," Research Paper Series 81, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  15. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
  16. David Heath & Eckhard Platen, 2003. "Pricing of Index Options Under a Minimal Market Model with Lognormal Scaling," Research Paper Series 101, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eckhard Platen & Renata Rendek, 2007. "Empirical Evidence on Student-t Log-Returns of Diversified World Stock Indices," Research Paper Series 194, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  2. Truc Le & Eckhard Platen, 2006. "Approximating the Growth Optimal Portfolio with a Diversified World Stock Index," Research Paper Series 184, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
    Other versions:
  3. Eckhard Platen, 2005. "On the Role of the Growth Optimal Portfolio in Finance," Research Paper Series 144, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
    Other versions:
  4. Kevin Fergusson & Eckhard Platen, 2006. "On the Distributional Characterization of Daily Log-Returns of a World Stock Index," Applied Mathematical Finance, Taylor and Francis Journals, vol. 13(1), pages 19-38, March. [Downloadable!] (restricted)
  5. Eckhard Platen & Wolfgang Runggaldier, 2007. "A Benchmark Approach to Portfolio Optimization under Partial Information," Asia-Pacific Financial Markets, Springer, vol. 14(1), pages 25-43, March. [Downloadable!] (restricted)
    Other versions:
  6. Eckhard Platen & Jason West & Wolfgang Breymann, 2004. "An Intraday Empirical Analysis of Electricity Price Behaviour," Research Paper Series 140, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  7. Kevin Fergusson & Eckhard Platen, 2005. "On the Distributional Characterization of Log-returns of a World Stock Index," Research Paper Series 153, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  8. Eckhard Platen & Wolfgang Runggaldier, 2004. "A Benchmark Approach to Filtering in Finance," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 79-105, March. [Downloadable!] (restricted)
    Other versions:
  9. Eckhard Platen, 2006. "On the Pricing and Hedging of Long Dated Zero Coupon Bonds," Research Paper Series 185, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  10. Eckhard Platen, 2004. "Capital Asset Pricing for Markets with Intensity Based Jumps," Research Paper Series 143, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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