K.U.Leuven - Departement Toegepaste Economische Wetenschappen
DTEW Research Report 0132 pages:1-15
In their seminal paper, Gerber and Shiu (1994) introduced the concept of the Esscher transform for option pricing. As examples they considered the shifted Poisson process, the random walk, a shifted gamma process and a shifted inverse Gaussian process to describe the logarithm of the stock price. In the present paper it is shown how upper and lower bounds in convex order can be obtained when we use these types of models to describe the financial stochasticity for a given cash-flow.