Short Communication: Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

Yan Dolinsky; Shir Moshe

doi:10.1137/21M1456431

Short Communication: Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

Yan Dolinsky, Shir Moshe

Department of Statistics

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

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
Pages (from-to)	SC12-SC25
Journal	SIAM Journal on Financial Mathematics
Volume	13
Issue number	1
DOIs	https://doi.org/10.1137/21M1456431
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

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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.",

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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: {\textcopyright} 2022 Society for Industrial and Applied Mathematics Publications. All rights reserved.",

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Short Communication: Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

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