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Contingent Claim Pricing In A Dual Expected Utility Theory Framework

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  • Massimiliano Corradini
  • Andrea Gheno

Abstract

This paper investigates the price for contingent claims in a dual expected utility theory framework, the dual price, considering complete arbitrage-free nancial markets. In this framework this dual price is obtained, for the rst time in the literature, without any comonotonicity hypothesis and for contingent claims written on n underlying assets following generic Itô processes. An application is also considered assuming geometric brownian motion for the underlying assets and the Wang transform as distortion function.

Suggested Citation

  • Massimiliano Corradini & Andrea Gheno, 2007. "Contingent Claim Pricing In A Dual Expected Utility Theory Framework," Departmental Working Papers of Economics - University 'Roma Tre' 0082, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0082
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    References listed on IDEAS

    as
    1. Wang, Shaun S., 2002. "A Universal Framework for Pricing Financial and Insurance Risks," ASTIN Bulletin, Cambridge University Press, vol. 32(2), pages 213-234, November.
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    3. Wang, Shaun S. & Young, Virginia R., 1998. "Ordering risks: Expected utility theory versus Yaari's dual theory of risk," Insurance: Mathematics and Economics, Elsevier, vol. 22(2), pages 145-161, June.
    4. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    6. Marisa Cenci & Massimiliano Corradini & Andrea Gheno, 2005. "Dynamic portfolio selection in a dual expected utility theory framework," Departmental Working Papers of Economics - University 'Roma Tre' 0056, Department of Economics - University Roma Tre.
    7. Cenci, Marisa & Corradini, Massimiliano & Gheno, Andrea, 2006. "Dynamic Portfolio Selection in a Dual Expected Utility Theory Framework," ASTIN Bulletin, Cambridge University Press, vol. 36(2), pages 505-520, November.
    8. Mahmoud Hamada & Michael Sherris, 2003. "Contingent claim pricing using probability distortion operators: methods from insurance risk pricing and their relationship to financial theory," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(1), pages 19-47.
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    More about this item

    Keywords

    Contingent Claims Pricing; Dual Utility Theory; Wang Transform.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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