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Time-consistent and market-consistent evaluations

Authors :
Pelsser, A.A.J.
Stadje, M.
Pelsser, A.A.J.
Stadje, M.
Source :
Mathematical Finance vol.24 (2014) date: 2014-01-01 nr.1 p.25-65 [ISSN 0960-1627]
Publication Year :
2014

Abstract

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We propose to extend standard actuarial principles by a new market-consistent evaluation procedure which we call "two-step market evaluation." This procedure preserves the structure of standard evaluation techniques and has many other appealing properties. We give a complete axiomatic characterization for two-step market evaluations. We show further that in a dynamic setting with continuous stock prices every evaluation which is time-consistent and market-consistent is a two-step market evaluation. We also give characterization results and examples in terms of g-expectations in a Brownian-Poisson setting.

Details

Database :
OAIster
Journal :
Mathematical Finance vol.24 (2014) date: 2014-01-01 nr.1 p.25-65 [ISSN 0960-1627]
Notes :
DOI: 10.1111/mafi.12026, English
Publication Type :
Electronic Resource
Accession number :
edsoai.on1376704890
Document Type :
Electronic Resource