Convex upper and lower bounds for present value functions

DOI10.1002/ASMB.437MaRDI QIDQ2739981zbMATH OpenOpenAlexFDO

Authors David Vyncke, Marc J. Goovaerts, J. Dhaene

Publication date 16 September 2001

Published in Applied Stochastic Models in Business and Industry (Search for Journal in Brave)

Full work available at URL https://lirias.kuleuven.be/handle/123456789/118652

zbMATH Keywords

comonotonicityconvex orderdiscount processpresent valueVasicek model

Mathematics Subject Classification ID

Review text

The authors consider the present value of a series of \(n\) payments \(c_{i}\) at times \(\tau_{i}, i=1,\ldots,n\) in the form \(V_0= \sum_{i=1}^{n}c_{i}\exp(-\int_{0}^{\tau_{i}} r(s) ds)\). Here the instantaneous interest rate \(r(t)\) satisfies either the Vasicek model stochastic differential equation \(dr=(\alpha-\beta r) dt+ \gamma dB\), where \(\alpha,\beta,\gamma\geq 0\), \(B(t)\) is the standard Wiener process, or the Ho-Lee model \(dr=\alpha(t) dt+\gamma dB\). In this paper analytical upper and lower bounds (in convex order sense) for the distribution function of \(V_0\) are obtained. The accuracy of the proposed bounds is investigated by comparing their cumulative distribution functions to the empirical cumulative distribution functions obtained by Monte Carlo simulation.

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Cites work

• An equilibrium characterization of the term structure
• scientific article; zbMATH DE number 605729 (Why is no real title available?)
• Non-additive measure and integral

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(12)

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• scientific article; zbMATH DE number 5657307 (Why is no real title available?)
• Some limiting properties of the bounds of the present value function of a life insurance portfolio
• Stable Laws and the Present Value of Fixed Cash Flows
• Upper and lower bounds for sums of random variables
• An application of comonotonicity and convex ordering to present values with truncated stochastic interest rates

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