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Portfolio selection and asset pricing under a benchmark approach

✍ Scribed by Eckhard Platen

Publisher
Elsevier Science
Year
2006
Tongue
English
Weight
152 KB
Volume
370
Category
Article
ISSN
0378-4371

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✦ Synopsis

The paper presents classical and new results on portfolio optimization, as well as the fair pricing concept for derivative pricing under the benchmark approach. The growth optimal portfolio is shown to be a central object in a market model. It links asset pricing and portfolio optimization. The paper argues that the market portfolio is a proxy of the growth optimal portfolio. By choosing the drift of the discounted growth optimal portfolio as parameter process, one obtains a realistic theoretical market dynamics.

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