Utility Based Pricing And Hedging Of Jump Diffusion Processes With A View To Applications

The authors discuss utility based pricing and hedging of jump diffusion processes with emphasis on the practical applicability of the framework. They point out two difficulties that seem to limit this applicability, namely drift dependence and essential risk aversion independence. They suggest solving these by a re-interpretation of the framework. This leads to the notion of an implied drift. They also present a heuristic derivation of the marginal indifference price and the marginal optimal hedge that might be useful in numerical computations.

Provided by: University of Gottingen Topic: CXO Date Added: Jun 2011 Format: PDF

Find By Topic