Diversified portfolios with jumps in a benchmark framework

Publication Type:
Journal Article
Asia-Pacific Financial Markets, 2005, 11 (1), pp. 1 - 22
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This paper considers diversified portfolios in a sequence of jump diffusion market models. Conditions for the approximation of the growth optimal portfolio (GOP) by diversified portfolios are provided. Under realistic assumptions, it is shown that diversified portfolios approximate GOP without requiring any major model specifications. This provides a basis for systematic use of diversified stock indices as proxies for the GOP in derivative pricing, risk management and portfolio optimisation
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