Stochastic Upper Bounds for Present Value Functions

  title={Stochastic Upper Bounds for Present Value Functions},
  author={Marc J. Goovaerts and Jan Dhaene and Ann De Schepper},
Abstract In most practical cases, it is impossible to find an explicit expression for the distribution function of the present value of a sequence of cash flows that are discounted using a stochastic return process. In this paper, we present an easy computable approximation for this distribution function. The approximation is a distribution function which is, in the sense of convex order, an upper bound for the original distribution function. Explicit examples are given for pricing stochastic… CONTINUE READING
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