Time-consistent and market-consistent evaluations

A. Pelsser, M.A. Stadje

Research output: Contribution to journalArticleScientificpeer-review

39 Citations (Scopus)


We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We propose to extend standard actuarial principles by a new market-consistent evaluation procedure which we call “two-step market evaluation.” This procedure preserves the structure of standard evaluation techniques and has many other appealing properties. We give a complete axiomatic characterization for two-step market evaluations. We show further that in a dynamic setting with continuous stock prices every evaluation which is time-consistent and market-consistent is a two-step market evaluation. We also give characterization results and examples in terms of g-expectations in a Brownian-Poisson setting.
Original languageEnglish
Pages (from-to)25-65
JournalMathematical Finance
Issue number1
Early online date7 Feb 2013
Publication statusPublished - 2014


  • Actuarial valuation principles
  • financial risk
  • market-consistency
  • time-consistency


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