Overview of Utility-Based Valuation
We review the utility-based valuation method for pricing derivative securities in incomplete markets. In particular, we review the practical approach to the utility-based pricing by the means of computing the first order expansion of marginal utility-based prices with respect to a small number of random endowments.
AMS Subject Classification91B16 91B25 91G20
Key-wordsUtility-based prices Price corrections Risk-tolerance
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- Davis, M.H.A., 1997. Option pricing in incomplete markets. In Mathematics of Derivative Securities (Cambridge, 1995), Volume 15 of Publ. Newton Inst., pp. 216–226, Cambridge Univ. Press.Google Scholar