Reduced-form setting under model uncertainty with non-linear affine intensities

Biagini, Francesca and Oberpriller, Katharina (2021): Reduced-form setting under model uncertainty with non-linear affine intensities. In: Probability Uncertainty and Quantitative Risk, Vol. 6, No. 3: pp. 159-188

Abstract

In this paper we extend the reduced-form setting under model uncertainty introduced in [5] to include intensities following an affine process under parameter uncertainty, as defined in [15]. This framework allows us to introduce a longevity bond under model uncertainty in a way consistent with the classical case under one prior and to compute its valuation numerically. Moreover, we price a contingent claim with the sublinear conditional operator such that the extended market is still arbitrage-free in the sense of no arbitrage of the first kind as in [6].

• Item Type: Journal article
• Faculties: Mathematics, Computer Science and Statistics > Mathematics > Workgroup Financial Mathematics
• Subjects: 500 Science > 510 Mathematics
• ISSN: 2095-9672
• Language: English