Bounds for the utility-indifference prices of non-traded assets in incomplete markets |
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Authors: | DG Hobson |
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Institution: | (1) Department of Mathematical Sciences, University of Bath, UK |
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Abstract: | Abstract
We consider a special class of financial models with both traded and non-traded assets and show that the utility indifference
(bid) price of a contingent claim on a non-traded asset is bounded above by the expectation under the minimal martingale measure.
This bound also represents the marginal bid price for the claim.
The key conclusion is that the bound and the marginal bid price are independent of both the utility function and initial wealth
of the agent. Thus all utility maximising agents charge the same marginal price for the claim. This conclusion is in some
sense the opposite conclusion to that of Hubalek and Schachermayer (2001), who show that any price is consistent with some
equivalent martingale measure.
Mathematics Subject Classification (2000): 91B28, 91B16, 60J70
Journal of Economic Literature Classification: G13 |
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Keywords: | |
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