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
Date Written: March 30, 2012
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: Suggested Citation