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- Title
Stochastic orders in dynamic reinsurance markets.
- Authors
Møller, Thomas
- Abstract
We consider a dynamic reinsurance market, where the traded risk process is driven by a compound Poisson process and where claim amounts are unbounded. These markets are known to be incomplete, and there are typically infinitely many martingale measures. In this case, no-arbitrage pricing theory can typically only provide wide bounds on prices of reinsurance claims. Optimal martingale measures such as the minimal martingale measure and the minimal entropy martingale measure are determined, and some comparison results for prices under different martingale measures are provided. This leads to a simple stochastic ordering result for the optimal martingale measures. Moreover, these optimal martingale measures are compared with other martingale measures that have been suggested in the literature on dynamic reinsurance markets.
- Subjects
REINSURANCE; MARKETS; POISSON processes; MARTINGALES (Mathematics); PRICING; PRICES
- Publication
Finance & Stochastics, 2004, Vol 8, Issue 4, p479
- ISSN
0949-2984
- Publication type
Article
- DOI
10.1007/s00780-004-0130-y