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Convergence of utility indifference prices to the superreplication price in a multiple-priors framework

Romain Blanchard and Laurence Carassus

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Abstract: This paper formulates an utility indifference pricing model for investors trading in a discrete time financial market under non-dominated model uncertainty. The investors preferences are described by strictly increasing concave random functions defined on the positive axis. We prove that under suitable conditions the multiple-priors utility indifference prices of a contingent claim converge to its multiple-priors superreplication price. We also revisit the notion of certainty equivalent for random utility functions and establish its relation with the absolute risk aversion.

New Economics Papers: this item is included in nep-upt
Date: 2017-09
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