Professor Eckhard Platen from University of Technology Sydney is giving a VGSF research seminar on "A Benchmark Approach to Finance" on Thursday, October 25, from 15:30 to 17:00 at Wirtschaftsuniversität Wien, HS D204 (UZA4, Nordbergstraße 15, 1090 Vienna). See the VGSF webpage (Activities & Events --> Research Seminars) for the paper to download.

Please note the change of the time and location for this seminar!!!

The paper's abstract is attached below.

Best,

Youchang Wu

This paper derives a unified framework for portfolio optimization, derivative pricing, financial modeling, and risk measurement. It is based on the natural assumption that investors prefer more rather than less, in the sense that given two portfolios with the same diffusion coefficient value, the one with the higher drift is preferred. Each such investor is shown to hold an efficient portfolio in the sense of Markowitz with units in the market portfolio and the savings account. The market portfolio of investable wealth is shown to equal a combination of the growth optimal portfolio (GOP) and the savings account. In this setup the capital asset pricing model follows without the use of expected utility functions, Markovianity, or equilibrium assumptions. The expected increase of the discounted value of the GOP is shown to coincide with the expected increase of its discounted underlying value. The discounted GOP has the dynamics of a time transformed squared Bessel process of dimension four. The time transformation is given by the discounted underlying value of the GOP. The squared volatility of the GOP equals the discounted GOP drift, when expressed in units of the discounted GOP. Risk-neutral derivative pricing and actuarial pricing are generalized by the fair pricing concept, which uses the GOP as numeraire and the real-world probability measure as pricing measure. An equivalent risk-neutral martingale measure does not exist under the derived minimal market model.