Actuarial Transform Pricing

Actuarial Approach to Option Pricing

Over sixty years ago, the Swedish actuary F. Esscher suggested that the Edgeworth approximation (a refinement of the normal approximation) yields better results, if it is applied to a modification of the original distribution of aggregate claims. In this paper, this Esscher transform is defined more generally as a change of measure for a certain class of stochastic processes that model stock pr...

Actuarial versus Nancial Pricing of Insurance 1

Actuarial Risk Measures for Financial Derivative Pricing

We present an axiomatic characterization of price measures that are superadditive and comonotonic additive for normally distributed random variables. The price representation derived, involves a probability measure transform that is closely related to the Esscher transform, and we call it the Esscher-Girsanov transform. In a financial market in which the primary asset price is represented by a ...

An Actuarial Bridge to Option Pricing

Actuaries measure, model, and manage risks. Risk associated with the investment function is a major uncertainty faced by many insurance companies. Actuaries should have knowledge of the asset side of the balance sheet of an insurance company and how it relates to the liability side. Such knowledge includes the operation of financial markets, the instruments available to the insurance companies,...

Transform Analysis and Asset Pricing for Affine

The fourth Stephen A. Ross Prize in Financial Economics has been awarded to “Transform Analysis and Asset Pricing for Affine Jump-Diffusions” published in Econometrica in 2000, by Darrell Duffie of Stanford University, Jun Pan of Massachusetts Institute of Technology, and Kenneth Singleton of Stanford University. The prize committee chose this paper for its important methodological contribution...