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Minimal Market Model

In: A Benchmark Approach to Quantitative Finance

Author

Listed:
  • Eckhard Platen

    (University of Technology)

  • David Heath

    (Australian National University)

Abstract

This chapter derives an alternative model for the long term dynamics of the GOP from basic economic arguments. The discounted GOP drift, which models the long term trend of the economy, is chosen as the key parameter process. This leads to the minimal market model with the discounted GOP forming a time transformed squared Bessel process of dimension four. Its dynamics allows us to explain various empirical stylized facts and other properties relating to the long term behavior of a world stock index.

Suggested Citation

  • Eckhard Platen & David Heath, 2006. "Minimal Market Model," Springer Finance, in: A Benchmark Approach to Quantitative Finance, chapter 13, pages 483-511, Springer.
    • Handle: RePEc:spr:sprfcp:978-3-540-47856-0_13
    DOI: 10.1007/978-3-540-47856-0_13
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