A note on the connection between the Esscher–Girsanov transform and the Wang transform

Labuschagne, Coenraad C.A.; Offwood, Theresa M.

doi:10.1016/j.insmatheco.2010.08.004

Cited by 21 publications

(8 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Furthermore, inspired by the so-called Esscher-Girsanov transform of Goovaerts and Laeven (2008) (see also He and Zhou (2016), Jin and Zhou (2008), Labuschagne and Offwood (2010),…”

Section: Analytical Expression Of Optimal Consumptionmentioning

confidence: 99%

Dynamic consumption and portfolio choice under prospect theory

Bilsen

Laeven

2020

Insurance: Mathematics and Economics

View full text Add to dashboard Cite

This paper explicitly derives the optimal dynamic consumption and portfolio choice of an individual with prospect theory preferences. The individual is loss averse, endogenously updates his reference level over time, and distorts probabilities. We show that the optimal consumption strategy is rather insensitive to economic shocks. In particular, in case the individual sufficiently overweights unlikely unfavorable events, our model generates an endogenous floor on consumption. As a result, an individual with prospect theory preferences typically implements a (very) conservative portfolio strategy. We discuss implications of our results for the design of investment-linked annuity products.

show abstract

“…Furthermore, inspired by the so-called Esscher-Girsanov transform of Goovaerts and Laeven (2008) (see also He and Zhou (2016), Jin and Zhou (2008), Labuschagne and Offwood (2010),…”

Section: Analytical Expression Of Optimal Consumptionmentioning

confidence: 99%

Dynamic consumption and portfolio choice under prospect theory

Bilsen

Laeven

2020

Insurance: Mathematics and Economics

View full text Add to dashboard Cite

show abstract

“…These approaches have been applied to pricing in a variety of areas including the securitization of longevity and mortality risks (Cox, Lin, and Wang, ; Denuit, Devolder, and Goderniaux, ; Chen, Zhang, and Zhao, ), annuity (Lin, Tan, and Yang, ), mortgage (Chen, Cox, and Wang, ), weather derivatives (Moridaira, ), and options and other derivatives in general (Gerber and Shiu, ; Gerber and Landry, ; Vyncke et al, ; Monfort and Pegoraro, ). Connections between the Esscher and the Wang transforms are discussed in detail by Labuschagne and Offwood (). In particular, by using a negative exponential or a power utility function with an additional assumption that underlying asset returns follow a Normal distribution, we can recover the Esscher transform from the Wang transform with identical risk aversion parameters…”

Section: Weather Risk Hedging and Its Contribution To The Corporate Vmentioning

confidence: 99%

Managing Weather Risks: The Case of J. League Soccer Teams in Japan

Ito

Ozawa

2015

J of Risk & Insurance

View full text Add to dashboard Cite

Weather-related risks present significant concerns for businesses worldwide. This article studies the impact weather conditions have on the financial performance of sports teams and proposes a hedging mechanism to manage the exposure. We analyze a unique game attendance data set supplied by the Japanese premier soccer association, J. League. Our analysis shows that precipitation has a significantly adverse impact on game attendance and team profits. We then design a hedging mechanism for this risk exposure and examine its contribution to the corporate value of the teams. In particular, we use the Wang transform model to incorporate the decision makers' risk preferences in the evaluation of the weather derivatives, where the risk aversion parameters are obtained from a survey of J. League managers. We find that the proposed weather derivatives contribute significantly to team value. Our analysis and results provide insights for weather risk management for sports teams in the international markets.

show abstract

“…This distortion function was independently proposed by Goovaerts and Laeven (2008) under the guise of Esscher-Girsanov transform. They characterize a pricing mechanism involving this transform and also consider its dynamic extension (see also Labuschagne and O¤wood, 2010).…”

Section: De…nitionsmentioning

confidence: 99%

Stochastic comparisons of distorted variability measures

Sordo

Suárez‐Llorens

2011

Insurance: Mathematics and Economics

View full text Add to dashboard Cite

In this paper, we consider the dispersive order and the excess wealth order to compare the variability of distorted distributions. We know from Sordo (2009a) that the excess wealth order can be characterized in terms of a class of variability measures associated to the tail conditional distribution which includes, as a particular measure, the tail variance. Given that the tail conditional distribution is a particular distorted distribution, a natural question is whether this result can be extended to include other classes of variability measures associated to general distorted distributions. As we show in this paper, the answer is yes, by focussing on distorted distributions associated to concave distortion functions. For distorted distributions associated to more general distortions, the characterizations are stated in terms of the stronger dispersive order. MSC: IM30

show abstract

A note on the connection between the Esscher–Girsanov transform and the Wang transform

Cited by 21 publications

References 18 publications

Dynamic consumption and portfolio choice under prospect theory

Dynamic consumption and portfolio choice under prospect theory

Managing Weather Risks: The Case of J. League Soccer Teams in Japan

Stochastic comparisons of distorted variability measures

Contact Info

Product

Resources

About