An Equilibrium Approach to Indifference Pricing

In: M. Kijima, Y. Muromachi and T. Shibata (Eds.), Recent Advances in Financial Engineering, World Scientific, pp.29-56, (2016), with corrections and additional topics, as the title "An equilibrium approach to indifference pricing with model uncertainty".

16 Pages Posted: 11 Mar 2010 Last revised: 7 Apr 2016

See all articles by Mark Davis

Mark Davis

Imperial College London

Daisuke Yoshikawa

Hokkai-Gakuen University

Date Written: March 30, 2012

Abstract

The utility indifference framework has received a lot of attention, because it is based on a utility maximization principle, which is one of the most fundamental principles of economics, for pricing a contingent claim. The price based on utility indifference framework is the maximum or minimum (in some cases, threshold) price for each investor. Therefore, the price is the indicator for the investor to join the market of the contingent claim. Our purpose is to expand the view of utility indifference framework, that is, to deduce the equilibrium price in the utility indifference framework. We attain the result that, under the setting of exponential utility, the equilibrium price will be uniquely evaluated by minimal entropy martingale measure.

Keywords: Indifference Pricing, Equilibrium

JEL Classification: G12, G13

Suggested Citation

Davis, Mark and Yoshikawa, Daisuke, An Equilibrium Approach to Indifference Pricing (March 30, 2012). In: M. Kijima, Y. Muromachi and T. Shibata (Eds.), Recent Advances in Financial Engineering, World Scientific, pp.29-56, (2016), with corrections and additional topics, as the title "An equilibrium approach to indifference pricing with model uncertainty".. Available at SSRN: https://ssrn.com/abstract=1568856 or http://dx.doi.org/10.2139/ssrn.1568856

Mark Davis

Imperial College London ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
02075948486 (Phone)

HOME PAGE: http://www.ma.ic.ac.uk/~mdavis

Daisuke Yoshikawa (Contact Author)

Hokkai-Gakuen University ( email )

4-1-40, Asahi-machi, Toyohira-ku
Sapporo-shi
Hokkai-do, 062-8605
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
142
Abstract Views
895
rank
215,147
PlumX Metrics