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Pseudo linear pricing rule for utility indifference valuation |
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| Authors: | Vicky Henderson Gechun Liang |
| Institution: | 1. Department of Statistics, University of Warwick, Coventry, CV4 7AL, UK 2. Oxford-Man Institute, University of Oxford, Oxford, OX2 6ED, UK 3. Department of Mathematics, King’s College London, London, WC2R 2LS, UK |
| Abstract: | This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model, and provides two linear approximations for the utility indifference price. The key tool is a probabilistic representation for the utility indifference price by the solution of a functional differential equation, which is termed pseudo linear pricing rule. We also provide an alternative derivation of the quadratic BSDE representation for the utility indifference price. |
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