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Indifference pricing and hedging in stochastic volatility models | | M. R. Grasselli
; T. R. Hurd
; | | Date: |
24 Apr 2004 | | Subject: | Probability; Optimization and Control MSC-class: 49L20, 91B16, 91B28 | math.PR math.OC | | 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. | | Source: | arXiv, math.PR/0404447 | | Services: | Forum | Review | PDF | Favorites | |
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