Abstract
This chapter derives an alternative model for the long term dynamics of the GOP from basic economic arguments. The discounted GOP drift, which models the long term trend of the economy, is chosen as the key parameter process. This leads to the minimal market model with the discounted GOP forming a time transformed squared Bessel process of dimension four. Its dynamics allows us to explain various empirical stylized facts and other properties relating to the long term behavior of a world stock index.
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© 2006 Springer-Verlag Berlin Heidelberg
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Platen, E., Heath, D. (2006). Minimal Market Model. In: A Benchmark Approach to Quantitative Finance. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-47856-0_13
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DOI: https://doi.org/10.1007/978-3-540-47856-0_13
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-26212-1
Online ISBN: 978-3-540-47856-0
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