Benchmarking and fair pricing applied to two market models

Hulley, H; Miller, S; Platen, E

Benchmarking and fair pricing applied to two market models

Hulley, H

Miller, S Platen, E

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Publisher:: Graduate School of Economics, Kyoto University
Publication Type:: Journal Article
Citation:: The Kyoto Economic Review, 2005, 74 (1), pp. 85 - 118
Issue Date:: 2005-01

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Field	Value	Language
dc.contributor.author	Hulley, H https://orcid.org/0000-0002-6684-8309	en_US
dc.contributor.author	Miller, S	en_US
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.date.issued	2005-01	en_US
dc.identifier.citation	The Kyoto Economic Review, 2005, 74 (1), pp. 85 - 118	en_US
dc.identifier.issn	1349-6778	en_US
dc.identifier.uri	http://hdl.handle.net/10453/6372
dc.description.abstract	This paper considers a market containing both continuous and discrete noise. Modest assumptions ensure the existence of a growth optimal portfolio. Non-negative self-financing trading strategies, when benchmarked by this portfolio, are local martingales unde the real-world measure. This justifies the fair pricing approach, which expresses derivative prices in terms of real-world conditional expectations of benchmarked pay-offs. Two models for benchmarked primary security accounts are presentated, and fair pricing formulas for some common contingent claims are derived.	en_US
dc.publisher	Graduate School of Economics, Kyoto University	en_US
dc.relation.ispartof	The Kyoto Economic Review	en_US
dc.title	Benchmarking and fair pricing applied to two market models	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	74	en_US
utslib.for	140302 Econometric and Statistical Methods	en_US
utslib.for	14 Economics	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 Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
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.consider-herdc	true	en_US
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	74	en_US

Abstract:

This paper considers a market containing both continuous and discrete noise. Modest assumptions ensure the existence of a growth optimal portfolio. Non-negative self-financing trading strategies, when benchmarked by this portfolio, are local martingales unde the real-world measure. This justifies the fair pricing approach, which expresses derivative prices in terms of real-world conditional expectations of benchmarked pay-offs. Two models for benchmarked primary security accounts are presentated, and fair pricing formulas for some common contingent claims are derived.

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http://hdl.handle.net/10453/6372