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Title: Utility-based indifference pricing in regime-switching models
Authors: Elliott, Robert
Siu, Tak Kuen
Keywords: Contingent claim valuation;Hedging
Issue Date: 2011
Publisher: Elsevier
Citation: R.J. Elliott and T.K. Siu, „Utility-Based Indifference Pricing in Regime Switching Models‟, Nonlinear Analysis Series A: Theory, Methods & Applications, 74 (2011), 6302-6313
Abstract: In this paper, we study utility-based indifference pricing and hedging of a contingent claim in a continuous-time, Markov, regime-switching model. The market in this model is incomplete, so there is more than one price kernel. We specify the parametric form of price kernels so that both market risk and economic risk are taken into account. The pricing and hedging problem is formulated as a stochastic optimal control problem and is discussed using the dynamic programming approach. A verification theorem for the Hamilton–Jacobi–Bellman (HJB) solution to the problem is given. An issuer’s price kernel is obtained from a solution of a system of linear programming problems and an optimal hedged portfolio is determined.
Description: Article deposited according to the policy found on the Elsevier website, ,, June 28, 2012.
ISSN: 0362-546X
Appears in Collections:Elliott, Robert

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