Abstract
This paper proposes a model for measuring risks for derivatives that is easy to implement and
satisfies a set of four coherent properties introduced in Artzner et al. (1999). We construct our
model within the context of Gerber-Shiu’s option-pricing framework. A new concept, namely
Bayesian Esscher scenarios, which extends the concept of generalized scenarios, is introduced via
a random Esscher transform. Our risk measure involves the use of the risk-neutral Bayesian Esscher
scenario for pricing and a family of real-world Bayesian Esscher scenarios for risk measurement.
Closed-form expressions for our risk measure can be obtained in some special cases.
satisfies a set of four coherent properties introduced in Artzner et al. (1999). We construct our
model within the context of Gerber-Shiu’s option-pricing framework. A new concept, namely
Bayesian Esscher scenarios, which extends the concept of generalized scenarios, is introduced via
a random Esscher transform. Our risk measure involves the use of the risk-neutral Bayesian Esscher
scenario for pricing and a family of real-world Bayesian Esscher scenarios for risk measurement.
Closed-form expressions for our risk measure can be obtained in some special cases.
| Original language | English |
|---|---|
| Pages (from-to) | 78-91 |
| Journal | North American Actuarial Journal |
| Volume | 5 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2001 |
| Externally published | Yes |