Reduced-form setting under model uncertainty with non-linear affine processes

Francesca Biagini and Katharina Oberpriller

Papers from arXiv.org

Abstract: In this paper we extend the reduced-form setting under model uncertainty introduced in [5] to include intensities following an affine process under parameter uncertainty, as defined in [15]. This framework allows to introduce a longevity bond under model uncertainty in a consistent way with the classical case under one prior, and to compute its valuation numerically. Moreover, we are able to price a contingent claim with the sublinear conditional operator such that the extended market is still arbitrage-free in the sense of "No Arbitrage of the first kind" as in [6].

Date: 2020-06, Revised 2020-06
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