Benchmark Model with Intensity Based Jumps

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Benchmark Model with Intensity Based Jumps

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Eckhard Platen () (School of Finance and Economics, University of Technology, Sydney)

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Eckhard Platen

Abstract

This paper proposes a class of financial market models with security price processes that exhibit intensity based jumps. Primary security account prices, when expressed in units of the benchmark, turn out to be local martingales. The benchmark model exludes, so called, benchmark arbitrage but permits arbitrage amounts, which arise for benchmarked price processes that are strict local martingales. In the proposed framework, generally, an equivalent risk neutral measure does not exist. Benchmarked fair derivative prices are obtained as conditional expectations of future benchmarked prices under the real world probability measure.

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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 81.

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Date of creation: 01 Jun 2002
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Handle: RePEc:uts:rpaper:81

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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Eckhard Platen, 2003. "Pricing and Hedging for Incomplete Jump Diffusion Benchmark Models," Research Paper Series 110, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Eckhard Platen & Wolfgang Runggaldier, 2002. "A Benchmark Approach to Filtering in Finance," Research Paper Series 77, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Other versions:
- 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)
David Heath & Eckhard Platen, 2006. "Local volatility function models under a benchmark approach," Quantitative Finance, Taylor and Francis Journals, vol. 6(3), pages 197-206, June. [Downloadable!] (restricted)
Other versions:
- David Heath & Eckhard Platen, 2004. "Local Volatility Function Models under a Benchmark Approach," Research Paper Series 124, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Ashkan Nikeghbali & Eckhard Platen, 2008. "On Honest Times in Financial Modeling," Research Paper Series 229, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Other versions:
- Ashkan Nikeghbali & Eckhard Platen, 2008. "On honest times in financial modeling," Quantitative Finance Papers 0808.2892, arXiv.org. [Downloadable!]
Nicola Bruti-Liberati & Christina Nikitopoulos-Sklibosios & Eckhard Platen, 2007. "Pricing under the Real-World Probability Measure for Jump-Diffusion Term Structure Models," Research Paper Series 198, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 1-22, March. [Downloadable!] (restricted)
Other versions:
- Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Research Paper Series 129, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Eckhard Platen, 2003. "A Benchmark Framework for Risk Management," Research Paper Series 113, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]

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