A Note on Utility Indifference Pricing with Delayed Information

Peter Bank; Yan Dolinsky

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arXiv · 2011.05023

A Note on Utility Indifference Pricing with Delayed Information

Peter Bank·Yan Dolinsky

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Abstract

We consider the Bachelier model with information delay where investment decisions can be based only on observations from $H>0$ time units before. Utility indifference prices are studied for vanilla options and we compute their non-trivial scaling limit for vanishing delay when risk aversion is scaled liked $A/H$ for some constant $A$. Using techniques from [7], we develop discrete-time duality for this setting and show how the relaxed form of martingale property introduced by [9] results in the scaling limit taking the form of a volatility control problem with quadratic penalty.

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Peter Bank, Yan Dolinsky. 2020-11-10. A Note on Utility Indifference Pricing with Delayed Information. https://arxiv.org/abs/2011.05023

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