M6 - On Minimal Market Models and Minimal Martingale Measures
AbstractThe well-known absence-of-arbitrage condition NFLVR from the fundamental theorem of asset pricing splits into two conditions, called NA and NUPBR. We give a literature overview of several equivalent reformulations of NUPBR; these include existence of a growth-optimal portfolio, existence of the numeraire portfolio, and for continuous asset prices the structure condition (SC). As a consequence, the minimal market model of E. Platen is seen to be directly linked to the minimal martingale measure. We then show that reciprocals of stochastic exponentials of continuous local martingales are time changes of a squared Bessel process of dimension 4. This directly gives a very specific probabilistic structure for minimal market models.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 280.
Date of creation: 01 Jun 2010
Date of revision:
minimal market model' minimal martingale measure; growth-optimal portfolio; numeraire portfolio; NUPBR; structure condition (SC); continuous local martingales; squared Bessel process of dimension 4; log-optimal portfolio;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
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