Dynamic exponential utility indifference valuation

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We study the dynamics of the exponential utility indifference value process C(B;α) for a contingent claim B in a semimartingale model with a general continuous filtration. We prove that C(B;α) is (the first component of) the unique solution of a backward stochastic differential equation with a quadratic generator and obtain BMO estimates for the components of this solution. This allows us to prove several new results about C_t(B;α). We obtain continuity in B and local Lipschitz-continuity in the risk aversion α, uniformly in t, and we extend earlier results on the asymptotic behavior as α\searrow0 or α\nearrow\infty to our general setting. Moreover, we also prove convergence of the corresponding hedging strategies.
Published at http://dx.doi.org/10.1214/105051605000000395 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

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Probability, Computational Finance, 91B28, 60H10, 91B16, 60G48 (Primary)

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http://salesiana.dossiersoluciones.com/handle/123456789/210156

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/math/0508489
 http://arxiv.org/abs/math/0508489
 Annals of Applied Probability 2005, Vol. 15, No. 3, 2113-2143
 doi:10.1214/105051605000000395

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arXiv