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Upper and lower bounds on dynamic risk indifference prices in incomplete markets

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  • Xavier De Scheemaekere

Abstract

In the context of an incomplete market with a Brownian filtration and a fixed finite time horizon, this paper proves that for general dynamic convex risk measures, the buyer's and seller's risk indifference prices of a contingent claim are bounded from below and above by the dynamic lower and upper hedging prices, respectively.
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Suggested Citation

  • Xavier De Scheemaekere, 2010. "Upper and lower bounds on dynamic risk indifference prices in incomplete markets," Working Papers CEB 10-044, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/62988
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    References listed on IDEAS

    as
    1. Stefan Ankirchner & Peter Imkeller & Goncalo dos Reis, 2007. "Pricing and hedging of derivatives based on non-tradable underlyings," Papers 0712.3746, arXiv.org.
    2. Carr, Peter & Geman, Helyette & Madan, Dilip B., 2001. "Pricing and hedging in incomplete markets," Journal of Financial Economics, Elsevier, vol. 62(1), pages 131-167, October.
    3. N. Bellamy & M. Jeanblanc, 2000. "Incompleteness of markets driven by a mixed diffusion," Finance and Stochastics, Springer, vol. 4(2), pages 209-222.
    4. Foellmer,Hans & Schweizer,Martin, "undated". "Hedging of contingent claims under incomplete information," Discussion Paper Serie B 166, University of Bonn, Germany.
    5. Jocelyne Bion-Nadal, 2008. "Dynamic risk measures: Time consistency and risk measures from BMO martingales," Finance and Stochastics, Springer, vol. 12(2), pages 219-244, April.
    6. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
    7. Kai Detlefsen & Giacomo Scandolo, 2005. "Conditional and dynamic convex risk measures," Finance and Stochastics, Springer, vol. 9(4), pages 539-561, October.
    8. Richard Rouge & Nicole El Karoui, 2000. "Pricing Via Utility Maximization and Entropy," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 259-276.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Backward stochastic differential equations; Dynamic convex risk measures; Incomplete markets; Indifference pricing;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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