This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Dynamic risk indifference pricing in incomplete markets

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Xavier De Scheemaekere () (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)

Additional information is available for the following registered author(s):

Abstract

This paper studies a contingent claim pricing problem in incomplete markets, based on the risk indifference principle. The seller's dynamic risk indifference price is the payment that makes the risk involved for the seller of a contract equal, at any time, to the risk involved if the contract is not sold and no payment is received. An explicit formula for the dynamic risk indifference price is given as the solution of a one-dimensional linear BSDE with stochastic Lipschitz coefficient. The results show that any convex risk measure used for indifference pricing leads to an equivalent martingale measure. This entails a simple linear representation of the price as the expected derivative payoff under the "risk indifference measure". From a risk management perspective, the model provides two-sided risk indifference bounds for derivative prices in incomplete markets.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp08027.pdf
File Format: application/pdf
File Function: First version, 2008
Download Restriction: no

Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 08-027.RS.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 31 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:sol:wpaper:08-027

Contact details of provider:
Postal: CP145/01, 21, avenue F.D. Roosevelt, 1050 Bruxelles
Phone: +32 (0)2 650.48.64
Fax: +32 (0)2 650.41.88
Email:
Web page: http://www.solvay.edu/EN/Research/Bernheim/index.php
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (CEB).

Related research
Keywords: Backward stochastic differential equations; BMO martingales; Incomplete markets; Indifference pricing; Time-consistent risk measures; Zero-sum stochastic differential games;

Other versions of this item:

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mingxin Xu, 2004. "Risk Measure Pricing and Hedging in Incomplete Markets," Finance 0406004, EconWPA, revised 06 Apr 2005. [Downloadable!]
    Other versions:
  2. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1473-1486, July. [Downloadable!] (restricted)
  3. Stefan Ankirchner & Peter Imkeller & Goncalo dos Reis, 2007. "Pricing and hedging of derivatives based on non-tradable underlyings," Quantitative Finance Papers 0712.3746, arXiv.org. [Downloadable!]
  4. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July. [Downloadable!] (restricted)
  5. Marek Musiela & Thaleia Zariphopoulou, 2004. "An example of indifference prices under exponential preferences," Finance and Stochastics, Springer, vol. 8(2), pages 229-239, 05. [Downloadable!] (restricted)
  6. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? There are over 21000 authors registered on RePEc Author Service.

This page was last updated on 2009-11-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.