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Pseudo linear pricing rule for utility indifference valuation

Listed author(s):
  • Vicky Henderson

    ()

  • Gechun Liang

    ()

This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model, and provides two linear approximations for the utility indifference price. The key tool is a probabilistic representation for the utility indifference price by the solution of a functional differential equation, which is termed pseudo linear pricing rule. We also provide an alternative derivation of the quadratic BSDE representation for the utility indifference price. Copyright Springer-Verlag Berlin Heidelberg 2014

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File URL: http://hdl.handle.net/10.1007/s00780-014-0235-x
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Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 18 (2014)
Issue (Month): 3 (July)
Pages: 593-615

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Handle: RePEc:spr:finsto:v:18:y:2014:i:3:p:593-615
DOI: 10.1007/s00780-014-0235-x
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/mathematics/quantitative+finance/journal/780/PS2

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  1. Marie-Amélie Morlais, 2009. "Quadratic BSDEs driven by a continuous martingale and applications to the utility maximization problem," Finance and Stochastics, Springer, vol. 13(1), pages 121-150, January.
  2. Becherer, Dirk, 2003. "Rational hedging and valuation of integrated risks under constant absolute risk aversion," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 1-28, August.
  3. Briand, Philippe & Elie, Romuald, 2013. "A simple constructive approach to quadratic BSDEs with or without delay," Stochastic Processes and their Applications, Elsevier, vol. 123(8), pages 2921-2939.
  4. Vicky Henderson, 2002. "Valuation Of Claims On Nontraded Assets Using Utility Maximization," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 351-373.
  5. Ankirchner, Stefan & Imkeller, Peter & Popier, Alexandre, 2009. "On measure solutions of backward stochastic differential equations," Stochastic Processes and their Applications, Elsevier, vol. 119(9), pages 2744-2772, September.
  6. Marek Musiela & Thaleia Zariphopoulou, 2004. "An example of indifference prices under exponential preferences," Finance and Stochastics, Springer, vol. 8(2), pages 229-239, May.
  7. Tevzadze, Revaz, 2008. "Solvability of backward stochastic differential equations with quadratic growth," Stochastic Processes and their Applications, Elsevier, vol. 118(3), pages 503-515, March.
  8. Ying Hu & Peter Imkeller & Matthias Muller, 2005. "Utility maximization in incomplete markets," Papers math/0508448, arXiv.org.
  9. Michael Mania & Martin Schweizer, 2005. "Dynamic exponential utility indifference valuation," Papers math/0508489, arXiv.org.
  10. Tehranchi, Michael, 2004. "Explicit solutions of some utility maximization problems in incomplete markets," Stochastic Processes and their Applications, Elsevier, vol. 114(1), pages 109-125, November.
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