The growth optimal portfolio (GOP) plays an important role in finance, where it serves as the numéraire portfolio, with respect to which contingent claims can be priced under the real world probability measure. This paper models the GOP using a time dependent constant elasticity of variance...

This paper proposes a unified framework for portfolio optimization,derivative pricing, modeling and risk measurement in financial markets with securityprice processes that exhibit intensity based jumps. It is based on the naturalassumption that investors prefer more for less, in the sense that...

Without requiring the existence of an equivalent risk-neutral probability measure thispaper studies a class of one-factor local volatility function models for stock indices undera benchmark approach. It is assumed that the dynamics for a large diversified indexapproximates that of the growth...

This paper describes a two-factor model for a diversified index that attempts to explainboth the leverage effect and the implied volatility skews that are characteristic of index options.Our formulation is based on an analysis of the growth optimal portfolio and a corresponding randommarket...

This paper derives a two-factor model for the term structure of interest rates that segmentsthe yield curve in a natural way. The first factor involves modelling a non-negative short rate processthat primarily determines the early part of the yield curve and is obtained as a truncated Gaussian...

This paper considers a diversified world stock index in a continuous financial marketwith the growth optimal portfolio (GOP) as reference unit or benchmark. Diversifiedbroadly based indices and portfolios, which include major world stock market indices,are shown to approximate the GOP. It is...

The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the...

Most of the papers that study the distributional and fractal properties of financial instruments focus on stock prices or foreign exchange rates. This typically leads to mixed results concerning the distributions of log-returns and some multi-fractal properties of exchange rates, stock prices,...

The benchmark approach provides a general framework for financial market modeling, which extends beyond the standard risk-neutral pricing theory. It permits a unified treatment of portfolio optimisation, derivative pricing, integrated risk managemetn and insurance risk modeling. Th existence of...

This paper examines international equity market co-movements using time-varying copulae. We examine distributions from the class of Symmetric Generalized Hyperbolic (SGH) distributions for modelling univariate marginals of equity index returns. We show based on the goodness-of-fit testing that...