Abstract
We consider indifference pricing of contingent claims consisting of payment flows in a
discrete time model with proportional transaction costs and under exponential disutility.
This setting covers utility maximisation of terminal wealth as a special case. A dual
representation is obtained for the associated disutility minimisation problem, together
with a dynamic procedure for solving it. This leads to efficient and convergent numerical
procedures for indifference pricing, optimal trading strategies and shadow prices that
apply to a wide range of payoffs, a large range of time steps and all magnitudes of
transaction costs.
discrete time model with proportional transaction costs and under exponential disutility.
This setting covers utility maximisation of terminal wealth as a special case. A dual
representation is obtained for the associated disutility minimisation problem, together
with a dynamic procedure for solving it. This leads to efficient and convergent numerical
procedures for indifference pricing, optimal trading strategies and shadow prices that
apply to a wide range of payoffs, a large range of time steps and all magnitudes of
transaction costs.
Original language | English |
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Number of pages | 41 |
Journal | International Journal of Theoretical and Applied Finance |
Early online date | 12 Jul 2022 |
DOIs | |
Publication status | E-pub ahead of print - 12 Jul 2022 |