Convergence of utility indifference prices to the superreplication price in a multiple‐priors framework

Romain Blanchard and Laurence Carassus

Mathematical Finance, 2021, vol. 31, issue 1, 366-398

Abstract: This paper formulates a utility indifference pricing model for investors trading in a discrete time financial market under nondominated model uncertainty. Investor preferences are described by possibly random utility functions defined on the positive axis. We prove that when the investors's absolute risk aversion tends to infinity, the multiple‐priors utility indifference prices of a contingent claim converge to its multiple‐priors superreplication price. We also revisit the notion of certainty equivalent for multiple‐priors and establish its relation with risk aversion.

Date: 2021
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