The Annals of Applied Probability
- Ann. Appl. Probab.
- Volume 15, Number 3 (2005), 2113-2143.
Dynamic exponential utility indifference valuation
We study the dynamics of the exponential utility indifference value process C(B; α) for a contingent claim B in a semimartingale model with a general continuous filtration. We prove that C(B; α) is (the first component of) the unique solution of a backward stochastic differential equation with a quadratic generator and obtain BMO estimates for the components of this solution. This allows us to prove several new results about Ct(B; α). We obtain continuity in B and local Lipschitz-continuity in the risk aversion α, uniformly in t, and we extend earlier results on the asymptotic behavior as α↘0 or α↗∞ to our general setting. Moreover, we also prove convergence of the corresponding hedging strategies.
Ann. Appl. Probab., Volume 15, Number 3 (2005), 2113-2143.
First available in Project Euclid: 15 July 2005
Permanent link to this document
Digital Object Identifier
Mathematical Reviews number (MathSciNet)
Zentralblatt MATH identifier
Mania, Michael; Schweizer, Martin. Dynamic exponential utility indifference valuation. Ann. Appl. Probab. 15 (2005), no. 3, 2113--2143. doi:10.1214/105051605000000395. https://projecteuclid.org/euclid.aoap/1121433779