Pricing under the Benchmark Approach
Fuente:
arXiv
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866908414557290496 |
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| author | Platen, Eckhard |
| author_facet | Platen, Eckhard |
| contents | The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The growth optimal portfolio of the stocks is approximated by a well-diversified stock portfolio and modeled by a drifted time-transformed squared Bessel process of dimension four. It is shown that the benchmark-neutral price of a European put option is theoretically the minimal possible price and the respective risk-neutral put price turns out to be significantly more expensive. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2506_16264 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Pricing under the Benchmark Approach Platen, Eckhard Mathematical Finance General Finance 62P05, 60G35, 62P20 G.3 The paper summarizes key results of the benchmark approach with a focus on the concept of benchmark-neutral pricing. It applies these results to the pricing of an extreme-maturity European put option on a well-diversified stock index. The growth optimal portfolio of the stocks is approximated by a well-diversified stock portfolio and modeled by a drifted time-transformed squared Bessel process of dimension four. It is shown that the benchmark-neutral price of a European put option is theoretically the minimal possible price and the respective risk-neutral put price turns out to be significantly more expensive. |
| title | Pricing under the Benchmark Approach |
| topic | Mathematical Finance General Finance 62P05, 60G35, 62P20 G.3 |
| url | https://arxiv.org/abs/2506.16264 |