This paper introduces a benchmark approach for the modelling of continuous, complete financial markets, when an equivalent risk-neutral measure does not exist. This approach is based on the unique characterization of a benchmark portfolio, the growth optimal portfolio, which is obtained via a generalization of the mutual fund theorem. The discounted growth optimal portfolio with minimum variance drift is shown to follow a Bessel process of dimension four. Some form of arbitrage can be explicitly modelled by arbitrage amounts. Fair contingent claim prices are derived as conditional expectations under the real world probability measure. The Heath-Jarrow-Morton forward rate equation remains valid despite the absence of an equivalent risk neutral measure.
