Indifference pricing and hedging in stochastic volatility models
Probability
2008-12-02 v1 Optimization and Control
Pricing of Securities
Abstract
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure volatility claims are efficiently computable. We obtain a general formula for the market price of volatility risk in these models and calculate it explicitly for the case of an exponential utility.
Keywords
Cite
@article{arxiv.math/0404447,
title = {Indifference pricing and hedging in stochastic volatility models},
author = {M. R. Grasselli and T. R. Hurd},
journal= {arXiv preprint arXiv:math/0404447},
year = {2008}
}