Conditional Davis Pricing
Mathematical Finance
2018-08-17 v2
Abstract
We study the set of marginal utility-based prices of a financial derivative in the case where the investor has a non-replicable random endowment. We provide an example showing that even in the simplest of settings - such as Samuelson's geometric Brownian motion model - the interval of marginal utility-based prices can be a non-trivial strict subinterval of the set of all no-arbitrage prices. This is in stark contrast to the case with a replicable endowment where non- uniqueness is exceptional. We provide formulas for the end points for these prices and illustrate the theory with several examples.
Keywords
Cite
@article{arxiv.1702.02087,
title = {Conditional Davis Pricing},
author = {Kasper Larsen and Halil Mete Soner and Gordan Žitković},
journal= {arXiv preprint arXiv:1702.02087},
year = {2018}
}