On a fundamental identity for stopping times and its application to risk theory (Q1814626)

Let \(S_ n\) be the \(n\)-th partial sum of a sequence of independent and identically distributed random variables. Let \(\phi(\ldots)\) denote the moment-generating function of the random variables, and let \(I(\ldots)\) denote the indicator function. This paper proves that, for any positive integer-valued stopping time \(\sigma\), \[ E[e^{t S_ \sigma}z^ \sigma I (\sigma<\infty)]=1+[z\phi(t)-1]\sum^ \infty_{k=0}E[e^{t S_ k}z^ kI (\sigma>k)], \] if the infinite series on the right-hand side converges. Consequences of this result are Wald's identity and Lundberg's inequality in risk theory.