Title: A note on the (in)dependence between financial and actuarial risks
Authors: Dhaene, Jan ×
Kukush, A.
Luciano, E
Schoutens, Wim
Stassen, Ben #
Issue Date: 2013
Series Title: Insurance: Mathematics & Economics vol:52 issue:3 pages:522-531
Abstract: Probability statements about future evolutions of financial and actuarial risks are expressed in terms of the ‘real-world’ probability measure PP, whereas in an arbitrage-free environment, the prices of these traded risks can be expressed in terms of an equivalent martingale measure QQ. The assumption of independence between financial and actuarial risks in the real world may be quite reasonable in many situations. Making such an independence assumption in the pricing world however, may be convenient but hard to understand from an intuitive point of view. In this pedagogical paper, we investigate the conditions under which it is possible (or not) to transfer the independence assumption from PP to QQ. In particular, we show that an independence relation that is observed in the PP-world can often not be maintained in the QQ-world.
ISSN: 0167-6687
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center Insurance, Leuven
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× corresponding author
# (joint) last author

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