51. A reusable discounting framework under jump-diffusion process.
- Author
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Peng, Ling and Kloeden, Peter E.
- Subjects
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LEVY processes , *SPECIAL functions , *MARTINGALES (Mathematics) , *DECISION making , *PSYCHOLOGISTS - Abstract
Due to the restriction of duality structure, existing discounting methods in Lévy models have not met the requirements from psychologists and economists. To address this weakness, our paper invents a stochastic heterogeneous quasi-hyperbolic (SHQH) clock. The SHQH clock has the following strengths: (i) being invisible in the duality structure; (ii) capturing multi-period, multi-goods and multi-agent preferences; (iii) nesting many discount functions as its special cases. Using a self-driven approach, this paper applies the SHQH clock to an insurance policy-holder who is both a farsighted planner and a myopic doer. The time-consistent insurance strategy is explicitly solved via equivalent martingale measure. • Designing a preference tool based on psychological experiments. • Accommodating dynamic preferences varying over time, good & decision-maker. • Making time-consistent decision under Lévy process & time-inconsistency. • Adopting a self-guided and assumption-free approach. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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