Related papers: Overview of utility-based valuation
In this paper, within the framework of uncertainty theory, the valuation of equity warrants is investigated. Different from the methods of probability theory, the equity warrants pricing problem is solved by using the method of uncertain…
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is…
This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices,…
Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions…
In this paper we have devised an alternative methodological approach for quantifying utility in terms of expected information content of the decision-maker's choice set. We have proposed an extension to the concept of utility by…
Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the…
Using tools from spectral analysis, singular and regular perturbation theory, we develop a systematic method for analytically computing the approximate price of a derivative-asset. The payoff of the derivative-asset may be path-dependent.…
In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite…
Recent progress in the development of efficient computational algorithms to price financial derivatives is summarized. A first algorithm is based on a path integral approach to option pricing, while a second algorithm makes use of a neural…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
We consider a stochastic financial incomplete market where the price processes are described by a vector-valued semimartingale that is possibly nonlocally bounded. We face the classical problem of utility maximization from terminal wealth,…
A derivative is a financial security whose value is a function of underlying traded assets and market outcomes. Pricing a financial derivative involves setting up a market model, finding a martingale (``fair game") probability measure for…
In this paper, we study the problem of expected utility maximization of an agent who, in addition to an initial capital, receives random endowments at maturity. Contrary to previous studies, we treat as the variables of the optimization…
In an incomplete financial market with general continuous semimartingale dynamics; we model an investor with log-utility preferences who, in addition to an initial capital, receives units of a non-traded endowment process. Using duality…
In this paper we study the pricing and hedging of structured products in energy markets, such as swing and virtual gas storage, using the exponential utility indifference pricing approach in a general incomplete multivariate market model…
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…
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…
Decision theory does not traditionally include uncertainty over utility functions. We argue that the a person's utility value for a given outcome can be treated as we treat other domain attributes: as a random variable with a density…
We derive valuations of a portfolio of financial instruments from a securities lending perspective, under different assumptions, and show a weighting scheme that converges to the true valuation. We illustrate conditions under which our…
We consider a problem of optimal investment with intermediate consumption and random endowment in an incomplete semimartingale model of a financial market. We establish the key assertions of the utility maximization theory assuming that…