Volatility > indifference > obstinacy > defence

Indifference pricing and hedging in stochastic volatility models

We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of “reciprocal affine” models for which the indifference price and optimal hedge portfolio for pure volatility claims are efficiently computable. We obtain a general formula for the market price of volatility risk in these models and calculate it explicitly for th...

Risk-based Indifference Pricing under a Stochastic Volatility Model

This paper considers a risk-based approach for indifference valuation of contingent claims in the context of a continuous-time stochastic volatility model. Since the market in the model is incomplete there is more than one arbitrage-free price of an option. We adopt a risk-based approach to select a seller’s and a buyer’s indifference price for the option contract. A convex risk measure is used...

Ignorance and Indifference*

The epistemic state of complete ignorance is not a probability distribution. In it, we assign the same, unique, ignorance degree of belief to any contingent outcome and each of its contingent, disjunctive parts. That this is the appropriate way to represent complete ignorance is established by two instruments, each individually strong enough to identify this state. They are the principle of ind...

Envelopes and Indifference

On material frame-indifference