Maxim Bichuch (Princeton University)-Pricing a Contingent Claim Liability with Transaction Costs Using Asymptotic Analysis for Optimal Investment
Mathematics - Colloquium
Tuesday, August 7, 2012
11:00 AM-12:00 PM
ABSTRACT: We price a contingent claim liability using the utility indifference argument. We consider an agent, who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost in two cases with and without the liability. In both cases, we provide a rigorous derivation of the asymptotic expansion of the value function and obtain a “nearly optimal" strategy. Additionally, we derive the asymptotic price of the contingent claim liability.
Suggested Audiences: Adult, College
Last Modified: August 1, 2012 at 3:59 PM