On the applicability of the Wang Transform for pricing financial risks

Antoon Pelsser

doi:10.2143/AST.38.1.2030409

On the applicability of the Wang Transform for pricing financial risks

Antoon Pelsser^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

19 Citations (Web of Science)

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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 language	English
Pages (from-to)	171-181
Number of pages	11
Journal	Astin Bulletin
Volume	38
Issue number	1
DOIs	https://doi.org/10.2143/AST.38.1.2030409
Publication status	Published - May 2008
Externally published	Yes

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10.2143/AST.38.1.2030409

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Cite this

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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.",

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AB - 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.

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