Modern Stochastics: Theory and Applications

Given a compound mixed renewal process S under a probability measure P, we provide a characterization of all progressively equivalent martingale probability measures Q on the domain of P, that convert S into a compound mixed Poisson process. This result extends earlier works of Delbaen and Haezendonck, Lyberopoulos and Macheras, and the authors, and enables us to find a wide class of price processes satisfying the condition of no free lunch with vanishing risk. Implications to the ruin problem and to the computation of premium calculation principles in an arbitrage-free insurance market are also discussed.

The structure of dependence between the forward and the backward recurrence times in a renewal process is considered. Monotonicity properties, as a function of time, for the tail of the bivariate distribution for the recurrence times are discussed, as well as their link with aging properties of the interarrival distribution F. A necessary and sufficient condition for the renewal function to be concave is also obtained. Finally, some properties of the conditional tail for one of the two recurrence times, given some information on the other, are studied. The results are illustrated by some numerical examples.