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A General Benchmark Model for Stochastic Jump Sizes |
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| Authors: | Morten Mosegaard Christensen Eckhard Platen |
| Affiliation: | 1. Department of Accounting and Finance, Department of Mathematics and Computer Science , University of Southern Denmark , Odense, Denmark morten.m.christensen@sam.sdu.dk;3. School of Finance and Economics, Department of Mathematical Sciences , University of Technology , Sydney, Australia |
| Abstract: | Abstract Under few technical assumptions and allowing for the absence of an equivalent martingale measure, we show how to price and hedge in a sequence of incomplete markets driven by Wiener noise and a marked point process. We investigate the structure of market prices of risk as markets become approximately complete and consider the limits of traded securities, characterizing explicitly the growth optimal portfolio and investigating arbitrage and diversification in such markets. |
| Keywords: | Approximate market completeness Arbitrage Benchmark model Growth optimal portfolio Marked point process Market price of risk |