The continuous behavior of the numeraire portfolio under small changes in information structure, probabilistic views and investment constraints
Abstract
The numeraire portfolio in a financial market is the unique positive wealth process that makes all other nonnegative wealth processes, when deflated by it, supermartingales. The numeraire portfolio depends on market characteristics, which include: (a) the information flow available to acting agents, given by a filtration; (b) the statistical evolution of the asset prices and, more generally, the states of nature, given by a probability measure; and (c) possible restrictions that acting agents might be facing on available investment strategies, modeled by a constraints set. In a financial market with continuous-path asset prices, we establish the stable behavior of the numeraire portfolio when each of the aforementioned market parameters is changed in an infinitesimal way.
Keywords
Cite
@article{arxiv.0804.2912,
title = {The continuous behavior of the numeraire portfolio under small changes in information structure, probabilistic views and investment constraints},
author = {Constantinos Kardaras},
journal= {arXiv preprint arXiv:0804.2912},
year = {2009}
}
Comments
16 pages; revised version