Asymptotic utility-based pricing and hedging for exponential utility

Kallsen Jan and Rheinländer Thorsten
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Rheinländer Thorsten: London School of Economics, Department of Statistics, London WC2A 2AE, Großbritannien

Statistics & Risk Modeling, 2011, vol. 28, issue 1, 17-36

Abstract: This paper deals with pricing and hedging based on utility indifference for exponential utility. We consider the limit for vanishing risk aversion or, equivalently, small quantities of the contingent claim. In first order approximation the utility indifference price and the corresponding hedge can be determined from the corresponding quadratic hedging problem relative to the minimal entropy martingale measure. This extends similar results obtained by Mania and Schweizer [21], Becherer [3], and Kramkov and Sîrbu [20,19].

Keywords: utility indifference pricing; incomplete markets; quadratic hedging; minimal entropy martingale measure (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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DOI: 10.1524/stnd.2011.1027

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