Indifference Pricing for Power Utilities

We study utility indifference pricing of claim streams with intertemporalconsumption and power (CRRA) utilities. We derive explicit formulasfor the derivatives of the utility indifference price with respect toclaims and wealth. The simple structure of these formulas is a reflectionof surprising operator identities for the derivatives of the optimalconsumption stream. For example, the partial derivative of the optimalconsumption stream with respect to the endowment is always aprojection. Furthermore, it is an orthogonal projection with respect toa natural ”economic inner product”.[...]

MoreLess

Year of publication:	2008-07-01
Authors:	Malamud, Semyon ; Trubowitz, Eugene ; Wüthrich, Mario V.
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Preisbildung \| pricing \| Nutzen \| Macht \| Power \| Indifferenz \| indierencevaluation

freely available

Full text |

More access options

Check Google Scholar

In German libraries (KVK)

I need help

1 Introduction
2 General Incomplete markets
2.1 The structure of market incompleteness
2.2 The budget set
2.3 Utility maximization problem
3 Separating consumption at time zero
3.1 Notations and definitions
3.2 Construction of optimal consumption streams
4 The derivatives of the consumption at timezero
5 Utility indifference pricing
5.1 The optimal consumption stream without a randomendowment
5.2 The derivatives of the indifference price with respect to claims
5.3 Homogeneity of the indifference price and the derivatives with respect to capital
6 The behavior of the premium for large claimsto capital ratio
7 Non perturbative bounds for the indifference price
8 Small claims / capital ratio
References

Persistent link: https://www.econbiz.de/10005868988