Corpus ID: 154369776

The efficient index hypothesis and its implications in the BSM model

@article{Vovk2011TheEI,
  title={The efficient index hypothesis and its implications in the BSM model},
  author={V. Vovk},
  journal={arXiv: General Finance},
  year={2011}
}
  • V. Vovk
  • Published 2011
  • Economics
  • arXiv: General Finance
  • This note studies the behavior of an index I_t which is assumed to be a tradable security, to satisfy the BSM model dI_t/I_t = \mu dt + \sigma dW_t, and to be efficient in the following sense: we do not expect a prespecified trading strategy whose value is almost surely always nonnegative to outperform the index greatly. The efficiency of the index imposes severe restrictions on its growth rate; in particular, for a long investment horizon we should have \mu\approx r+\sigma^2, where r is the… CONTINUE READING

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