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Risk indifference pricing and backward stochastic differential equations

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Author Info
Xavier De Scheemaekere () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)

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Abstract

We study a risk indifference pricing problem in incomplete markets: The (seller’s) risk indifference price is the initial payment that makes the risk involved for the seller of a contract equal to the risk involved if the contract is not sold, with no initial payment. We provide an explicit formula for the risk indifference price as the solution of a backward stochastic differential equation solving a zero-sum stochastic differential game problem.

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File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp08027.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 08-027.RS.

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Length: 28 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:sol:wpaper:08-027

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Related research
Keywords: Indifference pricing; Risk measure; Backward stochastic differential equation; Stochastic differential zero-sum game;

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mingxin Xu, 2004. "Risk Measure Pricing and Hedging in Incomplete Markets," Finance 0406004, EconWPA, revised 06 Apr 2005. [Downloadable!]
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  2. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1473-1486, July. [Downloadable!] (restricted)
  3. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July. [Downloadable!] (restricted)
  4. Marek Musiela & Thaleia Zariphopoulou, 2004. "An example of indifference prices under exponential preferences," Finance and Stochastics, Springer, vol. 8(2), pages 229-239, 05. [Downloadable!] (restricted)
  5. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447. [Downloadable!] (restricted)
    Other versions:
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