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Convergence of Utility Indifference Prices to the Superreplication Price

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  • Laurence Carassus
  • Miklós Rásonyi

Abstract

A discrete-time financial market model is considered with a sequence of investors whose preferences are described by concave strictly increasing functions defined on the positive axis. Under suitable conditions, we show that the utility indifference prices of a bounded contingent claim converge to its superreplication price when the investors’ absolute risk-aversion tends to infinity. Copyright Springer-Verlag 2006

Suggested Citation

  • Laurence Carassus & Miklós Rásonyi, 2006. "Convergence of Utility Indifference Prices to the Superreplication Price," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 64(1), pages 145-154, August.
    • Handle: RePEc:spr:mathme:v:64:y:2006:i:1:p:145-154
    DOI: 10.1007/s00186-006-0074-4
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    References listed on IDEAS

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    9. B. Bouchard & Yu. M. Kabanov & N. Touzi, 2001. "Option pricing by large risk aversion utility¶under transaction costs," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 24(2), pages 127-136, November.
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    Cited by:

    1. Flåm, Sjur, 2007. "Option Pricing by Mathematical Programming," Working Papers 2007:10, Lund University, Department of Economics.
    2. Laurence Carassus & Miklos Rasonyi, 2019. "Risk-neutral pricing for APT," Papers 1904.11252, arXiv.org, revised Oct 2020.
    3. Laurence Carassus & Miklós Rásonyi, 2020. "Risk-Neutral Pricing for Arbitrage Pricing Theory," Journal of Optimization Theory and Applications, Springer, vol. 186(1), pages 248-263, July.
    4. Romain Blanchard & Laurence Carassus, 2021. "Convergence of utility indifference prices to the superreplication price in a multiple‐priors framework," Mathematical Finance, Wiley Blackwell, vol. 31(1), pages 366-398, January.
    5. Laurence Carassus & Miklós Rásonyi, 2007. "Optimal Strategies and Utility-Based Prices Converge When Agents’ Preferences Do," Mathematics of Operations Research, INFORMS, vol. 32(1), pages 102-117, February.
    6. Peter Grandits & Stefan Thonhauser, 2011. "Risk averse asymptotics in a Black–Scholes market on a finite time horizon," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 74(1), pages 21-40, August.
    7. Romain Blanchard & Laurence Carassus, 2017. "Convergence of utility indifference prices to the superreplication price in a multiple-priors framework," Papers 1709.09465, arXiv.org, revised Oct 2020.

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