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Indifference pricing and hedging in stochastic volatility models

M. R. Grasselli·T. R. Hurd
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Abstract

We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure volatility claims are efficiently computable. We obtain a general formula for the market price of volatility risk in these models and calculate it explicitly for the case of an exponential utility.

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BibTeXRIS

M. R. Grasselli, T. R. Hurd. 2004-04-24. Indifference pricing and hedging in stochastic volatility models. https://arxiv.org/abs/math/0404447

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