Risk premia and financial modelling without measure transformation
This paper describes a financial market modelling framework that exploits the notion of a deflator . The denominations of the deflator measured in units of primary assets form a minimal set of basic financial quantities that completely specify the overall market dynamics, where deflated asset prices appear as martingales. A specific form for the risk premia is obtained as a natural consequence of the approach. Contingent claim prices are computed under the real world measure both in the case of complete and incomplete markets avoiding the use of an equivalent risk neutral measure transformation.
|Date of creation:||2000|
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Discussion Paper Serie B
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- Eckhard Platen, 1999. "A Minimal Share Market Model with Stochastic Volatility," Research Paper Series 21, Quantitative Finance Research Centre, University of Technology, Sydney.
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