Short communication: A note on utility indifference pricing with delayed information

Peter Bank, Yan Dolinsky

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We consider the Bachelier model with information delay where investment decisions can be based only on observations from H > 0 time units before. Utility indifference prices are studied for vanilla options, and we compute their nontrivial scaling limit for vanishing delay when risk aversion is scaled like A/H for some constant A. Using techniques from [M. Fritelli, Math. Finance, 10 (2000), pp. 39-52], we develop discrete-time duality for this setting and show how the relaxed form of the martingale property introduced by [Y. Kabanov and C. Stricker, The Dalang-Morton-Willinger theorem under delayed and restricted information, in In Memoriam Paul-André Meyer: Séminaire de Probabilités XXXIX, Lecture Notes in Math. 1874, Springer, Berlin, 2006, pp. 209-213] results in the scaling limit taking the form of a volatility control problem with quadratic penalty.

Original languageAmerican English
Pages (from-to)SC31-SC43
JournalSIAM Journal on Financial Mathematics
Volume12
Issue number2
DOIs
StatePublished - 2021

Bibliographical note

Publisher Copyright:
© 2021 Society for Industrial and Applied Mathematics

Keywords

  • Asymptotic analysis
  • Hedging with delay
  • Utility indifference pricing

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