Dam Rain and Cumulative Gain

Economy – Quantitative Finance – Pricing of Securities

Scientific paper

Rate now

  [ 0.00 ] – not rated yet Voters 0   Comments 0

Details

25 Pages, 1 Figure

Scientific paper

10.1098/rspa.2007.0273

We consider a financial contract that delivers a single cash flow given by the terminal value of a cumulative gains process. The problem of modelling and pricing such an asset and associated derivatives is important, for example, in the determination of optimal insurance claims reserve policies, and in the pricing of reinsurance contracts. In the insurance setting, the aggregate claims play the role of the cumulative gains, and the terminal cash flow represents the totality of the claims payable for the given accounting period. A similar example arises when we consider the accumulation of losses in a credit portfolio, and value a contract that pays an amount equal to the totality of the losses over a given time interval. An explicit expression for the value process is obtained. The price of an Arrow-Debreu security on the cumulative gains process is determined, and is used to obtain a closed-form expression for the price of a European-style option on the value of the asset. The results obtained make use of various remarkable properties of the gamma bridge process, and are applicable to a wide variety of financial products based on cumulative gains processes such as aggregate claims, credit portfolio losses, defined-benefit pension schemes, emissions, and rainfall.

No associations

LandOfFree

Say what you really think

Search LandOfFree.com for scientists and scientific papers. Rate them and share your experience with other people.

Rating

Dam Rain and Cumulative Gain does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Dam Rain and Cumulative Gain, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Dam Rain and Cumulative Gain will most certainly appreciate the feedback.

Rate now

     

Profile ID: LFWR-SCP-O-126658

All data on this website is collected from public sources. Our data reflects the most accurate information available at the time of publication.