Corpus ID: 158683387

Law-invariant insurance pricing and its limitations

@article{Bellini2018LawinvariantIP,
  title={Law-invariant insurance pricing and its limitations},
  author={Fabio Bellini and Pablo Koch-Medina and Cosimo Munari and Gregor Svindland},
  journal={arXiv: Pricing of Securities},
  year={2018}
}
We show that a law-invariant pricing functional defined on a general Orlicz space is typically incompatible with frictionless risky assets in the sense that one and only one of the following alternatives can hold: Either every risky payoff has a strictly-positive bid-ask spread or the pricing functional is given by an expectation and, hence, every payoff has zero bid-ask spread. In doing so we extend and unify a variety of "collapse to the mean" results from the literature and highlight the key… Expand

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