Actuarial risk measures for financial derivative pricing
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| Publication date | 2008 |
| Journal | Insurance: Mathematics & Economics |
| Volume | Issue number | 42 | 2 |
| Pages (from-to) | 540-547 |
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| Abstract | We present an axiomatic characterization of price measures that are superadditive and comonotonic additive for normally distributed random variables. The price representation derived involves a probability measure transform that is closely related to the Esscher transform, and we call it the Esscher-Girsanov transform. In a financial market in which the primary asset price is represented by a stochastic differential equation with respect to Brownian motion, the price mechanism based on the Esscher-Girsanov transform can generate approximate-arbitrage-free financial derivative prices. |
| Document type | Article |
| Published at |
https://doi.org/10.1016/j.insmatheco.2007.04.001
(Final published version)
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