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Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

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  • Yan Dolinsky
  • Shir Moshe

Abstract

We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options and we compute their non-trivial scaling limit for a vanishing price impact which is inversely proportional to the risk aversion. Moreover, we find explicitly a family of portfolios which are asymptotically optimal.

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  • Yan Dolinsky & Shir Moshe, 2021. "Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact," Papers 2111.00451, arXiv.org, revised Jan 2022.
    • Handle: RePEc:arx:papers:2111.00451
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    References listed on IDEAS

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    1. Sergey Nadtochiy, 2020. "A simple microstructural explanation of the concavity of price impact," Papers 2001.01860, arXiv.org, revised Dec 2020.
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    Cited by:

    1. Leonid Dolinskyi & Yan Dolinsky, 2023. "Optimal Liquidation with High Risk Aversion and Small Linear Price Impact," Papers 2301.01555, arXiv.org, revised Nov 2023.
    2. Leonid Dolinskyi & Yan Dolinsky, 2024. "Optimal liquidation with high risk aversion and small linear price impact," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 47(1), pages 183-198, June.

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