A New Justification of Wang Transform Operator in Financial Risk Analysis
نویسندگان
چکیده
One of the most widely used (and most successful) methods for pricing financial and insurance instruments under risk is the Wang transform method. In this paper, we provide a new explanation for the empirical success of Wang’s method – by providing a new simpler justification for the Wang transform. Pricing under risk: a problem. The price of most financial instruments unpredictably (randomly) fluctuates. As a result of these unpredictable fluctuations, investing in a financial instrument is risky: there is a always a possibility that the price of this particular instrument will go down, and as a result, the investors will suffer losses. In many practical situations, based on the prior performance of a financial instrument (and on the additional information that we may have), we can get a pretty good understanding of the probabilities of different future prices. In
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