Conditional Davis Pricing

Kasper Larsen, Halil Mete Soner and Gordan \v{Z}itkovi\'c

Papers from arXiv.org

Abstract: We study the set of marginal utility-based prices of a financial derivative in the case where the investor has a non-replicable random endowment. We provide an example showing that even in the simplest of settings - such as Samuelson's geometric Brownian motion model - the interval of marginal utility-based prices can be a non-trivial strict subinterval of the set of all no-arbitrage prices. This is in stark contrast to the case with a replicable endowment where non- uniqueness is exceptional. We provide formulas for the end points for these prices and illustrate the theory with several examples.

Date: 2017-02, Revised 2018-08
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1702.02087

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