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On utility-based derivative pricing with and without intermediate trades

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  • Kallsen Jan
  • Kühn Christoph

Abstract

The neutral valuation approach for contingent claims in incomplete markets is based on the assumption that investors are identical utility maximizers and that derivative supply and demand are balanced. It is closely related to (marginal) utility-based pricing in the sense of Hugonnier et al. (2005), where however only buy-and-hold investments in the derivative are possible.

Suggested Citation

  • Kallsen Jan & Kühn Christoph, 2006. "On utility-based derivative pricing with and without intermediate trades," Statistics & Risk Modeling, De Gruyter, vol. 24(4/2006), pages 1-20, October.
    • Handle: RePEc:bpj:strimo:v:24:y:2006:i:4/2006:p:20:n:2
    DOI: 10.1524/stnd.2006.24.4.415
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    References listed on IDEAS

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    1. Dirk Becherer, 2001. "The numeraire portfolio for unbounded semimartingales," Finance and Stochastics, Springer, vol. 5(3), pages 327-341.
    2. Foldes, Lucien, 2000. "Valuation and martingale properties of shadow prices: An exposition," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1641-1701, October.
    3. Goll, Thomas & Kallsen, Jan, 2000. "Optimal portfolios for logarithmic utility," Stochastic Processes and their Applications, Elsevier, vol. 89(1), pages 31-48, September.
    4. Sara Biagini & Marco Frittelli, 2005. "Utility maximization in incomplete markets for unbounded processes," Finance and Stochastics, Springer, vol. 9(4), pages 493-517, October.
    5. Julien Hugonnier & Dmitry Kramkov & Walter Schachermayer, 2005. "On Utility‐Based Pricing Of Contingent Claims In Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 203-212, April.
    6. Lucien Foldes, 2000. "Valuation and Martingale Properties of Shadow Prices," FMG Discussion Papers dp342, Financial Markets Group.
    7. Jan Kallsen & Christoph Kühn, 2004. "Pricing derivatives of American and game type in incomplete markets," Finance and Stochastics, Springer, vol. 8(2), pages 261-284, May.
    8. (**), Hui Wang & Jaksa Cvitanic & (*), Walter Schachermayer, 2001. "Utility maximization in incomplete markets with random endowment," Finance and Stochastics, Springer, vol. 5(2), pages 259-272.
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