Pricing and hedging of derivatives based on non-tradable underlyings

Economy – Quantitative Finance – Pricing of Securities

Scientific paper

Rate now

  [ 0.00 ] – not rated yet Voters 0   Comments 0

Details

Scientific paper

10.1111/j.1467-9965.2010.00398.x

This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices, and corresponding derivative hedges. We use the fact that they can be represented in terms of solutions of forward-backward stochastic differential equations (FBSDE) with quadratic growth generators. We derive the Markov property of such FBSDE and generalize results on the differentiability relative to the initial value of their forward components. In this case the optimal hedge can be represented by the price gradient multiplied with the correlation coefficient. This way we obtain a generalization of the classical 'delta hedge' in complete markets.

No associations

LandOfFree

Say what you really think

Search LandOfFree.com for scientists and scientific papers. Rate them and share your experience with other people.

Rating

Pricing and hedging of derivatives based on non-tradable underlyings does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Pricing and hedging of derivatives based on non-tradable underlyings, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Pricing and hedging of derivatives based on non-tradable underlyings will most certainly appreciate the feedback.

Rate now

     

Profile ID: LFWR-SCP-O-697028

  Search
All data on this website is collected from public sources. Our data reflects the most accurate information available at the time of publication.