On utility-based derivative pricing with and without intermediate trades

Kallsen Jan and Kühn Christoph

Statistics & Risk Modeling, 2006, vol. 24, issue 4, 415-434

Abstract: The neutral valuation approach for contingent claims in incomplete markets is based on the assumption that investors are identical utility maximizers and that derivative supply and demand are balanced. It is closely related to (marginal) utility-based pricing in the sense of Hugonnier et al. (2005), where however only buy-and-hold investments in the derivative are possible.This paper contains four results: Firstly, it is shown that neutral derivative prices exist in discrete-time markets with finite time horizon. They are characterized as martingales relative to certain finitely additive set functions. Secondly, it may happen that not any static utility-based derivative price can be extended to yield a neutral price process. Thirdly, neutral derivative prices may not exist in continuous-time markets. Finally, we consider the situation of finite utility on the whole real line.

Keywords: neutral derivative pricing; utility-based pricing; incomplete markets; martingales under finitely additive set functions (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1524/stnd.2006.24.4.415 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:strimo:v:24:y:2006:i:4/2006:p:20:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/strm/html

DOI: 10.1524/stnd.2006.24.4.415

Access Statistics for this article

Statistics & Risk Modeling is currently edited by Robert Stelzer

More articles in Statistics & Risk Modeling from De Gruyter
Bibliographic data for series maintained by Peter Golla ().