TY - UNPB
T1 - Optimal investment and contingent claim valuation with exponential disutility under proportional transaction costs
AU - Roux, Alet
PY - 2019
Y1 - 2019
N2 - 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 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 an efficient and convergent numerical procedure for indifference pricing which applies to a wide range of payoffs, a large range of time steps and all magnitudes of transaction costs.
AB - 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 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 an efficient and convergent numerical procedure for indifference pricing which applies to a wide range of payoffs, a large range of time steps and all magnitudes of transaction costs.
KW - transaction costs, option pricing, utility maximisation, entropy, indifference pricing, generalised convex hull, dynamic programming
M3 - Working paper
BT - Optimal investment and contingent claim valuation with exponential disutility under proportional transaction costs
ER -