Comparison of utility indifference pricing and mean-variance approach under normal mixture

Jiro Hodoshima, Tetsuya Misawa and Yoshio Miyahara

Finance Research Letters, 2018, vol. 24, issue C, 221-229

Abstract: We study utility indifference pricing in order to measure a random cash flow. We evaluate a utility indifference price with an exponential utility function, which we call a risk-sensitive value measure, under the class of normal mixture distributions. It has desirable properties as a value measure. We compare the risk-sensitive value measure and mean-variance approach and provide an empirical application.

Keywords: Random cash flow; Value measure; Utility indifference pricing; Normal mixture (search for similar items in EconPapers)
JEL-codes: C13 C46 C58 G11 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:221-229

DOI: 10.1016/j.frl.2017.09.008

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