Indifference valuation in incomplete binomial models
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The authors deal with so called indifference valuation under the exponential preferences i.e. the nonlinear pricing induced by the exponential utility function \[ \varphi(x)= - \exp(-\lambda x), \;\;\; \lambda >0. \] The goal is to determine the prices of contingent claims, which depend on one traded asset and one non-traded factor. This is performed for the binomial models. The authors provide two iterative pricing algorithms based respectively on the minimal martingale and minimal entropy measures.
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- Indifference valuation in incomplete binomial models
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Cited in
(12)- A valuation algorithm for indifference prices in incomplete markets
- Pricing early exercise contracts in incomplete markets
- Indifference pricing for CRRA utilities
- Forward exponential performances: pricing and optimal risk sharing
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