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On contingent claims pricing in incomplete markets: A risk sharing approach

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  • Michail Anthropelos
  • Nikolaos E. Frangos
  • Stylianos Z. Xanthopoulos
  • Athanasios N. Yannacopoulos

Abstract

In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the minimization of a convex combination of their utility differences. We call this price the risk sharing price, we prove its existence for a large family of utility functions and we state some of its properties. As an example, we analyze extensively the case where both agents report exponential utility.

Suggested Citation

  • Michail Anthropelos & Nikolaos E. Frangos & Stylianos Z. Xanthopoulos & Athanasios N. Yannacopoulos, 2008. "On contingent claims pricing in incomplete markets: A risk sharing approach," Papers 0809.4781, arXiv.org, revised Feb 2012.
    • Handle: RePEc:arx:papers:0809.4781
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    References listed on IDEAS

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