General indifference pricing with small transaction costs

Possamaï, Dylan; Royer, Guillaume

Possamaï, Dylan; Royer, Guillaume (2017), General indifference pricing with small transaction costs, Asymptotic Analysis, 102, 3-4, p. 177-226. 10.3233/ASY-171415

Type

Article accepté pour publication ou publié

External document link

https://arxiv.org/abs/1401.3261v2

Date

2017

Journal name

Asymptotic Analysis

Volume

102

Number

3-4

Publisher

Elsevier

Published in

Paris

Pages

177-226

Abstract (EN)

We study the utility indifference price of a European option in the context of smalltransaction costs. Considering the general setup allowingconsumption and a general utilityfunction at final timeT, we obtain an asymptotic expansion of the utility indifference priceas a function of the asymptotic expansions of the utility maximization problems with andwithout the European contingent claim. We use the tools developed in [51] and [45] basedon homogenization and viscosity solutions to characterizethese expansions. Finally weprovide two examples, in particular recovering under weaker assumptions the results of [6].

Subjects / Keywords

transaction costs; viscosity solutions; homogenization; utility indifference pricing; asymptotic expansions

JEL

D23 - Organizational Behavior; Transaction Costs; Property Rights