A benchmark model for financial markets
This paper introduces a benchmark model for financial markets, which is based on the unique characterization of a benchmark portfolio that is chosen to be the growth optimal portfolio. The general structure of risk premia for asset prices and portfolios is derived. Furthermore, the short rate is obtained as an average of appreciation rates. The benchmark model is shown to be locally arbitrage free, however, it still permits some form of arbitrage. Finally, a subclass of arbitrage free contingent claim prices is derived.
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- Eckhard Platen, 2001.
"A Minimal Financial Market Model,"
Research Paper Series
48, Quantitative Finance Research Centre, University of Technology, Sydney.
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