Title :
On the relation between risk sensitive control and indifference pricing
Author :
Hernández-Hernández, Daniel
Author_Institution :
Centro de Investig. en Mat., CIMAT, Guanajuato
Abstract :
In this paper the connection between the indifference price and risk sensitive control is explored for stochastic volatility models. It is proved that the indifference price of a European option can be written as the difference of the value functions of two different stochastic optimal control problems. The quasilinear PDEs involved in the solution of this problem are written and under suitable conditions a verification theorem is given.
Keywords :
optimal control; pricing; risk management; stochastic processes; European option; indifference pricing; risk sensitive control; stochastic optimal control problems; stochastic volatility models; Bonding; Discrete wavelet transforms; Economic indicators; Filtration; Helium; Optimal control; Pricing; Security; Stochastic processes; Yttrium;
Conference_Titel :
American Control Conference, 2008
Conference_Location :
Seattle, WA
Print_ISBN :
978-1-4244-2078-0
Electronic_ISBN :
0743-1619
DOI :
10.1109/ACC.2008.4586624