Hostname: page-component-7bb8b95d7b-2h6rp Total loading time: 0 Render date: 2024-09-11T21:09:16.623Z Has data issue: false hasContentIssue false
  • English
  • Français

On the Applicability of the Wang Transform for Pricing Financial Risks

Published online by Cambridge University Press:  17 April 2015

Antoon Pelsser
Antoon Pelsser*
Affiliation:
University of Amsterdam and NETSPAR, Dept. of Quantitative Economics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands, Tel.: (31)20-525 4210, Fax: (31)20-525 4349, E-Mail: a.a.j.pelsser@uva.nl Home-page: http://www.ase.uva.nl/pp/apelsser
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

In an arbitrage-free economy, it is well-known that financial risks can be priced using equivalent martingale measures. We establish in this paper that, for general stochastic processes, the Wang Transform does not lead to a price which is consistent with the arbitrage-free price. Based on these results we must conclude that the Wang Transform cannot be a universal framework for pricing financial and insurance risks.

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 38 , Issue 1 , May 2008 , pp. 171 - 181
Copyright
Copyright © ASTIN Bulletin 2008

Footnotes

JEL classification code: G13.

References

Björk, T. (1998) Arbitrage Theory in Continuous Time, Oxford University Press, Oxford.CrossRefGoogle Scholar
Karatzas, I. and Shreve, S.E. (1991) Brownian Motion and Stochastic Calculus, Second Edition, Springer Verlag, New York.Google Scholar
Ruhm, D. (2003) “Distribution-Based Pricing Formulas Are Not Arbitrage-Free”, Casualty Actuarial Society Proceedings, XC, 97–129.Google Scholar
Wang, S. (2000) “A Class of Distortion Operators for Pricing Financial and Insurance Risks”, Journal of Risk and Insurance, 67(1), 15–36.CrossRefGoogle Scholar
Wang, S. (2002) “A Universal Framework for Pricing Financial and Insurance Risk”, ASTIN Bulletin, 32(2), 213–234.CrossRefGoogle Scholar