2024/08/26 by Kumar, Rohini, Miller, Frederick "Forrest", Nasralah, Hussein +1
#60 #FOS: Economics and business #FOS: Mathematics #Mathematical Finance (q-fin.MF) #Pricing of Securities (q-fin.PR) #Probability (math.PR)
paper · doi:10.48550/arxiv.2409.00095
This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time, in a setting where buyer and seller have potentially different information, and show that these definitions are consistent with no-arbitrage principles. Specifying to stochastic volatility models, we characterize indifference prices via solutions of Backward Stochastic Differential Equations reflected at Backward Stochastic Differential Equations and show that this characterization provides a basis for the implementation of numerical methods using deep learning.