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Risk-indifference Pricing of American-style Contingent Claims

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Listed:
  • Rohini Kumar
  • Frederick Forrest Miller
  • Hussein Nasralah
  • Stephan Sturm

Abstract

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.

Suggested Citation

  • Rohini Kumar & Frederick Forrest Miller & Hussein Nasralah & Stephan Sturm, 2024. "Risk-indifference Pricing of American-style Contingent Claims," Papers 2409.00095, arXiv.org.
    • Handle: RePEc:arx:papers:2409.00095
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    References listed on IDEAS

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