On the Applicability of the Wang Transform for Pricing Financial Risks

Antoon Pelsser

ASTIN Bulletin, 2008, vol. 38, issue 1, 171-181

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.

Date: 2008
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