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

Romain Blanchard () and Laurence Carassus ()
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Romain Blanchard: PULV - Pôle Universitaire Léonard de Vinci
Laurence Carassus: PULV - Pôle Universitaire Léonard de Vinci, MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay

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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.

Keywords: absolute risk aversion; Knightian uncertainty; multiple-priors; non-dominated model; Utility indifference price; Superreplication price (search for similar items in EconPapers)
Date: 2020-10-16
Note: View the original document on HAL open archive server: https://hal.science/hal-01883423v1
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Published in Mathematical Finance, 2020, 31 (1), pp.366-398. ⟨10.1111/mafi.12288⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01883423

DOI: 10.1111/mafi.12288

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