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Pseudo Linear Pricing Rule for Utility Indifference Valuation

Vicky Henderson and Gechun Liang ()

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Abstract: This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model, and provides two linear approximations for the utility indifference price. The key tool is a probabilistic representation for the utility indifference price by the solution of a functional differential equation, which is termed \emph{pseudo linear pricing rule}. We also provide an alternative derivation of the quadratic BSDE representation for the utility indifference price.

Date: 2014-03
New Economics Papers: this item is included in nep-upt
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Published in Finance and Stochastics, 2014

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