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Asymptotic utility-based pricing and hedging for exponential utility

By Jan Kallsen and Thorsten Rheinlander

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

Topics: HA Statistics, HB Economic Theory
Publisher: Oldenbourg Verlag
Year: 2011
DOI identifier: 10.1524/stnd.2011.1027
OAI identifier: oai:eprints.lse.ac.uk:41550
Provided by: LSE Research Online
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