A Note on Utility Indifference Pricing with Delayed Information

Peter Bank and Yan Dolinsky

Papers from arXiv.org

Abstract: We consider the Bachelier model with information delay where investment decisions can be based only on observations from $H>0$ time units before. Utility indifference prices are studied for vanilla options and we compute their non-trivial scaling limit for vanishing delay when risk aversion is scaled liked $A/H$ for some constant $A$. Using techniques from [7], we develop discrete-time duality for this setting and show how the relaxed form of martingale property introduced by [9] results in the scaling limit taking the form of a volatility control problem with quadratic penalty.

Date: 2020-11, Revised 2021-03
New Economics Papers: this item is included in nep-upt
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