Convergence Results for the Indifference Value in aBrownian Setting with Variable Correlation

We study the exponential utility indierence value h for a contingentclaim H in an incomplete market driven by two Brownian motions.The claim H depends on a nontradable asset variably correlated withthe traded asset available for hedging. We provide an explicit se-quence that converges to h, complementing the structural results for hknown from the literature. Our study is based on a convergence resultfor quadratic backward stochastic dierential equations.[...]

MoreLess

Year of publication:	2009-07-09
Authors:	Frei, Christoph
Institutions:	Swiss National Centre of Competence in Research North South <Bern>
Subject:	Nutzen \| Exponentialfunktion \| exponential utility \| Indifferenz \| indierencevaluation \| Konvergenzgrenze \| Brownsche Bewegung \| Brownian motion

1 Introduction
2 Convergence results
3 Indierence valuation with convergent constraints
4 Indierence valuation in a Brownian setting
4.1 Model setup and preliminary results
4.2 Approximating the indierence value
4.3 Continuity of the value process in the correlation
A Appendix: Proofs of the convergence results
Acknowledgments
References

Persistent link: https://ebvufind01.dmz1.zbw.eu/10005868701