An approximate approach to the exponential utility indifference valuation

Research output: Contribution to journalArticle

Abstract

We propose, in this paper, a new valuation method for contingent claims, which approximates to the exponential utility indifference valuation. In particular, we treat both ask and bid valuations. In the definition of the exponential utility indifference valuation, we require strong integrability for the underlying contingent claim. The new valuation in this paper succeeds in reducing it by using a kind of power functions instead of the exponential function. Furthermore, we shall investigate some basic properties and an asymptotic behavior of the new valuation.

Original languageEnglish
Pages (from-to)475-503
Number of pages29
JournalInternational Journal of Theoretical and Applied Finance
Volume10
Issue number3
DOIs
Publication statusPublished - 2007 May

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Indifference
Exponential utility
Contingent claims
Asymptotic behavior
Integrability
Bid
Valuation methods

Keywords

  • Incomplete markets
  • Indifference value
  • p-optimal martingale measure
  • Reverse hölder inequality

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

An approximate approach to the exponential utility indifference valuation. / Arai, Takuji.

In: International Journal of Theoretical and Applied Finance, Vol. 10, No. 3, 05.2007, p. 475-503.

Research output: Contribution to journalArticle

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