Abstract
We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options, and we compute their nontrivial scaling limit for a vanishing price impact which is inversely proportional to the risk aversion. Moreover, we find explicitly a family of portfolios which are asymptotically optimal.
Original language | American English |
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Pages (from-to) | SC12-SC25 |
Journal | SIAM Journal on Financial Mathematics |
Volume | 13 |
Issue number | 1 |
DOIs | |
State | Published - 2022 |
Bibliographical note
Funding Information:\ast Received by the editors November 1, 2021; accepted for publication (in revised form) January 5, 2022; published electronically March 7, 2022. https://doi.org/10.1137/21M1456431 Funding: This work was supported by GIF grant 1489-304.6/2019 and by ISF grant 230/21. \dagger Department of Statistics, Hebrew University of Jerusalem, Jerusalem, 91905, Israel (yan.dolinsky@mail.huji.ac.il, shir.tapiro@mail.huji.ac.il).
Publisher Copyright:
© 2022 Society for Industrial and Applied Mathematics Publications. All rights reserved.
Keywords
- asymptotic analysis
- linear price impact
- utility indifference pricing