Benchmark-neutral pricing

Platen, E

Benchmark-neutral pricing

Platen, E

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Publisher:: Informa UK Limited
Publication Type:: Journal Article
Citation:: Quantitative Finance, 2025, 25, (12), pp. 1907-1919
Issue Date:: 2025

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Field	Value	Language
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123
dc.date.accessioned	2026-01-06T04:30:42Z
dc.date.available	2026-01-06T04:30:42Z
dc.date.issued	2025
dc.identifier.citation	Quantitative Finance, 2025, 25, (12), pp. 1907-1919
dc.identifier.issn	1469-7688
dc.identifier.issn	1469-7696
dc.identifier.uri	http://hdl.handle.net/10453/191327
dc.description.abstract	The paper proposes benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numéraire and the new benchmark-neutral pricing measure for pricing. For the assumed ‘natural’ dynamics of a well-diversified stock portfolio, which are those of the continuous limit of a branching process of diversified wealth in some activity time, this pricing measure turns out to be an equivalent probability measure. This is not the case for the putative risk-neutral pricing measure. Benchmark-neutral pricing identifies the minimal possible prices of contingent claims. Risk-neutral prices of long-term contracts can be significantly more expensive than necessary. The extremely accurate hedge of a long-term zero-coupon bond illustrates the proposed pricing and hedging method.
dc.language	en
dc.publisher	Informa UK Limited
dc.relation.ispartof	Quantitative Finance
dc.relation.isbasedon	10.1080/14697688.2025.2577115
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	01 Mathematical Sciences, 14 Economics, 15 Commerce, Management, Tourism and Services
dc.subject.classification	Finance
dc.subject.classification	35 Commerce, management, tourism and services
dc.subject.classification	38 Economics
dc.subject.classification	49 Mathematical sciences
dc.title	Benchmark-neutral pricing
dc.type	Journal Article
utslib.citation.volume	25
utslib.for	01 Mathematical Sciences
utslib.for	14 Economics
utslib.for	15 Commerce, Management, Tourism and Services
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Faculty of Science
pubs.organisational-group	University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
utslib.copyright.status	open_access	*
pubs.consider-herdc	true
dc.rights.license	This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-nd/4.0/
dc.date.updated	2026-01-06T04:30:41Z
pubs.issue	12
pubs.publication-status	Published
pubs.volume	25
utslib.citation.issue	12

Abstract:

The paper proposes benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numéraire and the new benchmark-neutral pricing measure for pricing. For the assumed ‘natural’ dynamics of a well-diversified stock portfolio, which are those of the continuous limit of a branching process of diversified wealth in some activity time, this pricing measure turns out to be an equivalent probability measure. This is not the case for the putative risk-neutral pricing measure. Benchmark-neutral pricing identifies the minimal possible prices of contingent claims. Risk-neutral prices of long-term contracts can be significantly more expensive than necessary. The extremely accurate hedge of a long-term zero-coupon bond illustrates the proposed pricing and hedging method.

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http://hdl.handle.net/10453/191327