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Asymptotic utility-based pricing and hedging for exponential utility
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Jan Kallsen
Published/Copyright:
March 3, 2011
Abstract
This paper deals with pricing and hedging based on utility indifference for exponential utility. We consider the limit for vanishing risk aversion or, equivalently, small quantities of the contingent claim. In first order approximation the utility indifference price and the corresponding hedge can be determined from the corresponding quadratic hedging problem relative to the minimal entropy martingale measure. This extends similar results obtained by Mania and Schweizer [21], Becherer [3], and Kramkov and Sîrbu [20,19].
Keywords: utility indifference pricing; incomplete markets; quadratic hedging; minimal entropy martingale measure
Published Online: 2011-03-03
Published in Print: 2011-03
© by Oldenbourg Wissenschaftsverlag, Kiel, Germany
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- Abstentions in the German Bundesrat and ternary decision rules in weighted voting systems
- Asymptotic utility-based pricing and hedging for exponential utility
- Robust replication in H-self-similar Gaussian market models under uncertainty
- A note on moment convergence of bootstrap M-estimators
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Keywords for this article
utility indifference pricing;
incomplete markets;
quadratic hedging;
minimal entropy martingale measure
Articles in the same Issue
- Abstentions in the German Bundesrat and ternary decision rules in weighted voting systems
- Asymptotic utility-based pricing and hedging for exponential utility
- Robust replication in H-self-similar Gaussian market models under uncertainty
- A note on moment convergence of bootstrap M-estimators
- On the maximization of financial performance measures within mixture models
