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Pricing under the Benchmark Approach

Mathematical Finance 2025-06-23 v1 General Finance

Abstract

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.

Keywords

Cite

@article{arxiv.2506.16264,
  title  = {Pricing under the Benchmark Approach},
  author = {Eckhard Platen},
  journal= {arXiv preprint arXiv:2506.16264},
  year   = {2025}
}

Comments

22 pages, 2 figures. arXiv admin note: text overlap with arXiv:2407.01542

R2 v1 2026-07-01T03:25:06.315Z