This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method. We apply our methodology to study the counterparty risk of derivatives in incomplete markets.
In an incomplete market, with incompleteness stemming from stochas-tic factors imperfectly correlated with the underlying stocks, we derive representations of homothetic forward investment performance processes (power, exponential and logarithmic). We develop a connection with er-godic and infinite horizon quadratic BSDE, and with a risk-sensitive control… (More)