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The continuous behavior of the numéraire portfolio under small changes in information structure, probabilistic views and investment constraints

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  • Kardaras, Constantinos

Abstract

The numéraire portfolio in a financial market is the unique positive wealth process that makes all other nonnegative wealth processes, when deflated by it, supermartingales. The numéraire portfolio depends on market characteristics, which include: (a) the information flow available to acting agents, given by a filtration; (b) the statistical evolution of the asset prices and, more generally, the states of nature, given by a probability measure; and (c) possible restrictions that acting agents might be facing on available investment strategies, modeled by a constraint set. In a financial market with continuous-path asset prices, we establish the stable behavior of the numéraire portfolio when each of the aforementioned market parameters is changed in an infinitesimal way.

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  • Kardaras, Constantinos, 2010. "The continuous behavior of the numéraire portfolio under small changes in information structure, probabilistic views and investment constraints," Stochastic Processes and their Applications, Elsevier, vol. 120(3), pages 331-347, March.
    • Handle: RePEc:eee:spapps:v:120:y:2010:i:3:p:331-347
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    References listed on IDEAS

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    1. Kasper Larsen & Gordan Zitkovic, 2007. "Stability of utility-maximization in incomplete markets," Papers 0706.0474, arXiv.org.
    2. Dirk Becherer, 2001. "The numeraire portfolio for unbounded semimartingales," Finance and Stochastics, Springer, vol. 5(3), pages 327-341.
    3. Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," Papers math/0503013, arXiv.org, revised May 2006.
    4. Larsen, Kasper & Zitkovic, Gordan, 2007. "Stability of utility-maximization in incomplete markets," Stochastic Processes and their Applications, Elsevier, vol. 117(11), pages 1642-1662, November.
    5. Ioannis Karatzas & Constantinos Kardaras, 2007. "The numéraire portfolio in semimartingale financial models," Finance and Stochastics, Springer, vol. 11(4), pages 447-493, October.
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    Cited by:

    1. Pietro Siorpaes, 2015. "Optimal investment and price dependence in a semi-static market," Finance and Stochastics, Springer, vol. 19(1), pages 161-187, January.
    2. Paolo Guasoni & Constantinos Kardaras & Scott Robertson & Hao Xing, 2014. "Abstract, classic, and explicit turnpikes," Finance and Stochastics, Springer, vol. 18(1), pages 75-114, January.

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