An example of indifference prices under exponential preferences

@article{Musiela2004AnEO,
  title={An example of indifference prices under exponential preferences},
  author={Marek Musiela and Thaleia Zariphopoulou},
  journal={Finance and Stochastics},
  year={2004},
  volume={8},
  pages={229-239}
}
The aim herein is to analyze utility-based prices and hedging strategies. The analysis is based on an explicitly solved example of a European claim written on a nontraded asset, in a model where risk preferences are exponential, and the traded and nontraded asset are diffusion processes with, respectively, lognormal and arbitrary dynamics. Our results show that a nonlinear pricing rule emerges with certainty equivalent characteristics, yielding the price as a nonlinear expectation of the… CONTINUE READING
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