On the applicability of the Wang transform for pricing financial risks. (English) Zbl 1169.91343
Summary: 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.
MSC:
| 91B24 | Microeconomic theory (price theory and economic markets) |
| 91G80 | Financial applications of other theories |
| 91B30 | Risk theory, insurance (MSC2010) |
| 91B70 | Stochastic models in economics |
References:
| [1] | DOI: 10.2143/AST.32.2.1027 · Zbl 1090.91555 · doi:10.2143/AST.32.2.1027 |
| [2] | DOI: 10.2307/253675 · doi:10.2307/253675 |
| [3] | Arbitrage Theory in Continuous Time (1998) |
| [4] | Brownian Motion and Stochastic Calculus (1991) · Zbl 0734.60060 |
| [5] | Casualty Actuarial Society Proceedings XC pp 97– (2003) |
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