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Choquet Insurance Pricing: A Caveat

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  • Erio Castagnoli
  • Fabio Maccheroni
  • Massimo Marinacci

Abstract

We show that, if prices in a market are Choquet expectations, the existence of one frictionless asset may force the whole market to be frictionless. Any risky asset will cause this collapse if prices depend only on the distribution with respect to a given nonatomic probability measure; the frictionless asset has to be fully revealing if such dependence is not assumed. Similar considerations apply to law‐invariant coherent risk measures.

Suggested Citation

  • Erio Castagnoli & Fabio Maccheroni & Massimo Marinacci, 2004. "Choquet Insurance Pricing: A Caveat," Mathematical Finance, Wiley Blackwell, vol. 14(3), pages 481-485, July.
    • Handle: RePEc:bla:mathfi:v:14:y:2004:i:3:p:481-485
    DOI: 10.1111/j.0960-1627.2004.00201.x
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    1. Chateauneuf, A. & Kast, R. & Lapied, A., 1992. "Choquet Pricing for Financial Markets with Frictions," G.R.E.Q.A.M. 92a11, Universite Aix-Marseille III.
    2. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    3. Wang, Shaun, 1996. "Premium Calculation by Transforming the Layer Premium Density," ASTIN Bulletin, Cambridge University Press, vol. 26(1), pages 71-92, May.
    4. Massimo Marinacci, 2000. "A uniqueness theorem for convex-ranged probabilities," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 23(2), pages 121-132.
    5. A. Chateauneuf & R. Kast & A. Lapied, 1996. "Choquet Pricing For Financial Markets With Frictions1," Mathematical Finance, Wiley Blackwell, vol. 6(3), pages 323-330, July.
    6. Wang, Shaun S. & Young, Virginia R. & Panjer, Harry H., 1997. "Axiomatic characterization of insurance prices," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 173-183, November.
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