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.
|Number of pages||11|
|Publication status||Published - May 2008|