A Multivariate Extension of Equilibrium Pricing Transforms: The Multivariate Esscher and Wang Transforms for Pricing Financial and Insurance Risks

Abstract

This paper proposes a multivariate extension of the equilibrium pricing transforms for pricing general financial and insurance risks. The multivariate Esscher and Wang transforms are derived from Bühlmann’s equilibrium pricing model (1980) under some assumptions on the aggregate risk. It is shown that the Esscher and Wang transforms coincide with each other when the underlying risks are normally distributed.