This paper describes a financial market modelling framework that exploits the notion of a deflator . The denominations of the deflator measured in units of primary assets form a minimal set of basic financial quantities that completely specify the overall market dynamics, where deflated asset...

This paper proposes a paradigm shift in the valuation of long term contracts, away from classical no-arbitrage pricing towards pricing under the real world probability measure. In contrast to risk neutral pricing, which is a form of relative pricing, the long term average excess return of the...

The paper discusses the problem of hedging not perfectly replicable contingent claims by using a benchmark, the numerraire portfolio, as reference unit. The proposed concept of benchmarked risk minimization generalizes classical risk minimization, pioneered by Follmer, Sondermann and Schweizer....

The paper discusses the problem of hedging not perfectly replicable contingent claims by using a benchmark, the numerraire portfolio, as reference unit. The proposed concept of benchmarked risk minimization generalizes classical risk minimization, pioneered by Follmer, Sondermann and Schweizer....

According to the expectations hypothesis, the forward rate is equal to the expected future short rate, an argument that is not supported by most empirical studies that demonstrate the existence of term premiums. An alternative arbitrage-free term structure model for reviewing the expectations...

According to the expectations hypothesis, the forward rate is equal to the expected future short rate, an argument that is not supported by most empirical studies that demonstrate the existence of term premiums. An alternative arbitrage-free term structure model for reviewing the expectations...