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Asymptotic utility-based pricing and hedging for exponential utility

Kallsen, Jan and Rheinlander, Thorsten (2011) Asymptotic utility-based pricing and hedging for exponential utility. Statistics and Decisions, 28 (1). pp. 17-36. ISSN 0721-2631

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Abstract

This paper deals with pricing and hedging based on utility indifferences for exponential utility. We consider the limit for vanishing risk aversion or, equivalently, small quanities of the contingent claim. In first order approximation the utility indifference price and the corresponding hedge can be determined from the corresponding quadratic hedgin problem relative to the minimal entropy martingale measure. This extends dimilar results obtained by Mania and Schweizer, Becherer, and Kramkov and Sirbu.

Item Type: Article
Official URL: http://www.oldenbourg-link.com/loi/stnd
Additional Information: © 2011 Oldenbourg Verlag
Library of Congress subject classification: H Social Sciences > HA Statistics
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General
Sets: Departments > Statistics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 Jan 2012 11:29
URL: http://eprints.lse.ac.uk/41550/

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