On the applicability of the Wang Transform for pricing financial risks

Antoon Pelsser*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

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.
Original languageEnglish
Pages (from-to)171-181
Number of pages11
JournalAstin Bulletin
Volume38
Issue number1
DOIs
Publication statusPublished - May 2008
Externally publishedYes

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