Actuarial Transform Pricing

This article studies four transform pricing methods in the context of generalequilibrium (GE) framework. The four methods, viz. the Esscher transform, indifferencepricing, the Wang transform, and the standard deviation loading, arepopular among actuarial literature and practice. The transform pricing methodsoffer a convenient solution to contingent claim pricing problem when the underlyingrisk exposure cannot be fully hedged. We show analytically that these fourmethods are similar and close to the GE approach if the utility has an exponentialfunction, and the underlying distribution is Normal...