Pseudo linear pricing rule for utility indifference valuation

Henderson, Vicky; Liang, Gechun
July 2014
Finance & Stochastics;Jul2014, Vol. 18 Issue 3, p593
Academic Journal
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model, and provides two linear approximations for the utility indifference price. The key tool is a probabilistic representation for the utility indifference price by the solution of a functional differential equation, which is termed pseudo linear pricing rule. We also provide an alternative derivation of the quadratic BSDE representation for the utility indifference price.


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