A class of complete benchmark models with intensity-based jumps

Platen, E

A class of complete benchmark models with intensity-based jumps

Platen, E

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Publication Type:: Journal Article
Citation:: Journal of Applied Probability, 2004, 41 (1), pp. 19 - 34
Issue Date:: 2004-03-01

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Field	Value	Language
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.date.issued	2004-03-01	en_US
dc.identifier.citation	Journal of Applied Probability, 2004, 41 (1), pp. 19 - 34	en_US
dc.identifier.issn	0021-9002	en_US
dc.identifier.uri	http://hdl.handle.net/10453/3449
dc.description.abstract	This paper proposes a class of complete financial market models, the benchmark models, with security price processes that exhibit intensity-based jumps. The benchmark or reference unit is chosen to be the growth-optimal portfolio. Primary security account prices, when expressed in units of the benchmark, turn out to be local martingales. In the proposed framework an equivalent risk-neutral measure need not exist. Benchmarked fair derivative prices are obtained as conditional expectations of future benchmarked prices under the real-world probability measure. This concept of fair pricing generalizes the classical risk-neutral approach and the actuarial present-value pricing methodology.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP0343913
dc.relation.ispartof	Journal of Applied Probability	en_US
dc.relation.isbasedon	10.1239/jap/1077134665	en_US
dc.subject.classification	Statistics & Probability	en_US
dc.title	A class of complete benchmark models with intensity-based jumps	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	41	en_US
utslib.for	0104 Statistics	en_US
utslib.for	010205 Financial Mathematics	en_US
utslib.for	0102 Applied Mathematics	en_US
pubs.embargo.period	Not known	en_US
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
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	41	en_US

Abstract:

This paper proposes a class of complete financial market models, the benchmark models, with security price processes that exhibit intensity-based jumps. The benchmark or reference unit is chosen to be the growth-optimal portfolio. Primary security account prices, when expressed in units of the benchmark, turn out to be local martingales. In the proposed framework an equivalent risk-neutral measure need not exist. Benchmarked fair derivative prices are obtained as conditional expectations of future benchmarked prices under the real-world probability measure. This concept of fair pricing generalizes the classical risk-neutral approach and the actuarial present-value pricing methodology.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/3449