A Note on Utility-Based Pricing in Models with Transaction Costs

Mathematics and Financial Economics, Vol. 9, No. 3, 2015

12 Pages Posted: 30 Mar 2012 Last revised: 29 Jul 2015

See all articles by Mark Davis

Mark Davis

Imperial College London

Daisuke Yoshikawa

Hokkai-Gakuen University

Date Written: March 30, 2012

Abstract

In this paper, we consider the utility indifference pricing and utility-based pricing in the market with transaction costs. The utility maximization problem including contingent claims in the market with transaction costs has been considered by Bouchard (2002). Following his results, we consider the market equilibrium of contingent claims. In order to do this, specifying the utility function as exponential utility, we deduce the equilibrium in the market with transaction costs. Unlike Davis and Yoshikawa (2010), we have to assume a strong assumption to deduce zero trade equilibrium in a market with transaction costs. It implies that transaction costs can generate a non-zero trade equilibrium under weak assumption.

Keywords: equilibrium, transaction costs, indifference pricing, utility-based price

JEL Classification: G12, G13

Suggested Citation

Davis, Mark and Yoshikawa, Daisuke, A Note on Utility-Based Pricing in Models with Transaction Costs (March 30, 2012). Mathematics and Financial Economics, Vol. 9, No. 3, 2015 . Available at SSRN: https://ssrn.com/abstract=2031313 or http://dx.doi.org/10.2139/ssrn.2031313

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
113
Abstract Views
720
rank
260,019
PlumX Metrics