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arXiv · 2409.00095

Risk-indifference Pricing of American-style Contingent Claims

Rohini Kumar·Frederick "Forrest" Miller·Hussein Nasralah·Stephan Sturm
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Abstract

This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time, in a setting where buyer and seller have potentially different information, and show that these definitions are consistent with no-arbitrage principles. Specifying to stochastic volatility models, we characterize indifference prices via solutions of Backward Stochastic Differential Equations reflected at Backward Stochastic Differential Equations and show that this characterization provides a basis for the implementation of numerical methods using deep learning.

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Rohini Kumar, Frederick "Forrest" Miller, Hussein Nasralah, Stephan Sturm. 2024-08-26. Risk-indifference Pricing of American-style Contingent Claims. https://doi.org/10.3934/puqr.2026002

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