Please use this identifier to cite or link to this item:
|Title:||Pricing jump risk with utility indifference|
Utility indifference prices
|Citation:||Wu, L., Dai, M. (2009-03). Pricing jump risk with utility indifference. Quantitative Finance 9 (2) : 177-186. ScholarBank@NUS Repository. https://doi.org/10.1080/14697680701881771|
|Abstract:||This paper is concerned with option pricing in an incomplete market driven by a jump-diffusion process. We price options according to the principle of utility indifference. Our main contribution is an efficient multi-nomial tree method for computing the utility indifference prices for both European and American options. Moreover, we conduct an extensive numerical study to examine how the indifference prices vary in response to changes in the major model parameters. It is shown that the model reproduces 'crash-o-phobia' and other features of market prices of options. In addition, we find that the volatility smile generated by the model corresponds to a zero mean jump size, while the volatility skew corresponds to a negative mean jump size.|
|Source Title:||Quantitative Finance|
|Appears in Collections:||Staff Publications|
Show full item record
Files in This Item:
There are no files associated with this item.
checked on Dec 7, 2018
WEB OF SCIENCETM
checked on Nov 21, 2018
checked on Nov 23, 2018
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.