Risk-indifference Pricing of American-style Contingent Claims
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arXiv
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| Auteurs principaux: | , , , |
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866914443801133056 |
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| author | Kumar, Rohini Miller, Frederick "Forrest" Nasralah, Hussein Sturm, Stephan |
| author_facet | Kumar, Rohini Miller, Frederick "Forrest" Nasralah, Hussein Sturm, Stephan |
| contents | This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time, in a setting where buyer and seller have potentially different information, and show that these definitions are consistent with no-arbitrage principles. Specifying to stochastic volatility models, we characterize indifference prices via solutions of Backward Stochastic Differential Equations reflected at Backward Stochastic Differential Equations and show that this characterization provides a basis for the implementation of numerical methods using deep learning. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2409_00095 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Risk-indifference Pricing of American-style Contingent Claims Kumar, Rohini Miller, Frederick "Forrest" Nasralah, Hussein Sturm, Stephan Pricing of Securities Probability Mathematical Finance 60 This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time, in a setting where buyer and seller have potentially different information, and show that these definitions are consistent with no-arbitrage principles. Specifying to stochastic volatility models, we characterize indifference prices via solutions of Backward Stochastic Differential Equations reflected at Backward Stochastic Differential Equations and show that this characterization provides a basis for the implementation of numerical methods using deep learning. |
| title | Risk-indifference Pricing of American-style Contingent Claims |
| topic | Pricing of Securities Probability Mathematical Finance 60 |
| url | https://arxiv.org/abs/2409.00095 |