Related papers: Pricing for Large Positions in Contingent Claims
We study superreplication of European contingent claims in discrete time in a large trader model with market indifference prices recently proposed by Bank and Kramkov. We introduce a suitable notion of efficient friction in this framework,…
Consider a financial market in which an agent trades with utility-induced restrictions on wealth. For a utility function which satisfies the condition of reasonable asymptotic elasticity at $-\infty$ we prove that the utility-based…
In this paper, we construct the utility-based optimal hedging strategy for a European-type option in the Almgren-Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second…
This work takes up the challenges of utility maximization problem when the market is indivisible and the transaction costs are included. First there is a so-called solvency region given by the minimum margin requirement in the problem…
In the context of an incomplete market with a Brownian filtration and a fixed finite time horizon, this paper proves that for general dynamic convex risk measures, the buyer's and seller's risk indifference prices of a contingent claim are…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We discuss the asymptotic behaviour of risk-based indifference prices of European contingent claims in discrete-time financial markets under volatility uncertainty as the number of intermediate trading periods tends to infinity. The…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modelled by a compound Poisson process and the insurer can adjust her portfolio by choosing…
This work focuses on the indifference pricing of American call option underlying a non-traded stock, which may be partially hedgeable by another traded stock. Under the exponential forward measure, the indifference price is formulated as a…
We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or…
Risk and utility functionals are fundamental building blocks in economics and finance. In this paper we investigate under which conditions a risk or utility functional is sensitive to the accumulation of losses in the sense that any…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
We apply a utility-based method to obtain the value of a finite-time investment opportunity when the underlying real asset is not perfectly correlated to a traded financial asset. Using a discrete-time algorithm to calculate the…
In this paper, we study the exponential utility indifference pricing of pure endowment policies within a stochastic-factor model for an insurer who also invests in a financial market. Our framework incorporates a hazard rate modeled as an…
We study the dynamics of the exponential utility indifference value process C(B;\alpha) for a contingent claim B in a semimartingale model with a general continuous filtration. We prove that C(B;\alpha) is (the first component of) the…
We consider the problem of exponential utility indifference valuation under the simplified framework where traded and nontraded assets are uncorrelated but where the claim to be priced possibly depends on both. Traded asset prices follow a…