Dependence bounds for the difference of stop-loss payoffs on the difference of two random variables (Q2682971)

The paper analyzes the difference of stop-loss payoffs where the underlying is a difference of two random variables, aiming to use their comonotonic and countermonotonic modifications to construct upper and lower bounds for the expected payoff, even though the payoff function is neither convex nor concave. After introducing the main notations and preliminary tools, the analysis focuses on the conditions that determine bounds by virtue of comonotonicity and countermonotonicity. A detailed discussion involves the crossing points of the cumulative distribution function (cdf) of the original difference with the cdf's of its comonotonic and countermonotonic transforms. Then, a numerical study of longevity trend bonds, using different mortality models and population data, exemplifies the results. Technical details and proofs are in appendix.