Papers › Risk-indifference Pricing of American-style Contingent Claims

Risk-indifference Pricing of American-style Contingent Claims

26 Aug 2024arXiv:2409.00095archive 2025-07-28

Rohini Kumar, Frederick "Forrest" Miller, Hussein Nasralah, Stephan Sturm

This paper studies the pricing of contingent claims of American style, using indifference pricing by fully dynamic convex risk measures. We provide a general definition of risk-indifference prices for buyers and sellers in continuous time, in a setting where buyer and seller have potentially different information, and show that these definitions are consistent with no-arbitrage principles. Specifying to stochastic volatility models, we characterize indifference prices via solutions of Backward Stochastic Differential Equations reflected at Backward Stochastic Differential Equations and show that this characterization provides a basis for the implementation of numerical methods using deep learning.

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