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Option pricing by large risk aversion utility¶under transaction costs

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Abstract.

We consider a multi-asset continuous-time model of a financial market with transaction costs and prove that, for a strongly risk-averse investor, the reservation price of a contingent claim approaches the super-replication price increased by the liquidation value of the initial endowment.

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Authors and Affiliations

  1. Université Paris VI, Pierre et Marie Curie, and CREST¶e-mail: bouchard@ccr.jussieu.fr, France

    B. Bouchard

  2. Université de Besançon and Central Economics and Mathematics Institute of the Russian Academy of Sciences¶ e-mail: kabanov@math.univ-fcomte.fr, France

    Yu. M. Kabanov

  3. Centre de Recherche en Economie et Statistique¶e-mail: touzi@ensae.fr, France

    N. Touzi

Authors
  1. B. Bouchard
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  2. Yu. M. Kabanov
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  3. N. Touzi
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Additional information

Received: 3 August 2000 / Accepted: 19 February 2001

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Bouchard, B., Kabanov, Y. & Touzi, N. Option pricing by large risk aversion utility¶under transaction costs. DEF 24, 127–136 (2001). https://doi.org/10.1007/s102030170003

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  • DOI: https://doi.org/10.1007/s102030170003

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