Indifference pricing and hedging in stochastic volatility models
M. R. Grasselli, T. R. Hurd
Abstract
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure volatility claims are efficiently computable. We obtain a general formula for the market price of volatility risk in these models and calculate it explicitly for the case of an exponential utility.
Create a lesson
Related papers
Weak universality of global dynamics for the fractional hyperbolic Φ43-model
Ruoyuan Liu
Last-Coverage Probabilities of Random Walks on Cycle Graphs for Symmetric, Biased, and Time-Dependent Walks
Kiyan Idnani, Jad Salem
Killing random motions with finite velocity
Enzo Orsingher, Manfred Marvin Marchione
An Exact Hausdorff Measure as Natural Length for SLE
Dapeng Zhan
Non-uniqueness for McKean--Vlasov SDEs with Hölder diffusion coefficients
Martin Bergerhausen, Paul Nikolaev, David J. Prömel
DisCo Algebra: Why Disintegration and Combination Are Not Inverses
Xuexing Lu