On Stop-Loss Order and the Distortion Pricing Principle

Abstract

AbstractA number of more or less well-known, but quite complex, characterizations of stop-loss order are reviewed and proved in an elementary way. Two recent proofs of the stop-loss order preserving property for the distortion pricing principle are invalidated through a simple counterexample. A new proof is presented. It is based on the important Hardy-Littlewood transform, which is known to characterize the stop-loss order by reduction to the usual stochastic order, and the dangerousness characterization of stop-loss order under a finite crossing condition. Finally, we complete and summarize the main properties of the distortion pricing principle.