This is the first book about the emerging field of utility
indifference pricing for valuing derivatives in incomplete markets.
Rene Carmona brings together a who's who of leading experts in the
field to provide the definitive introduction for students,
scholars, and researchers. Until recently, financial mathematicians
and engineers developed pricing and hedging procedures that assumed
complete markets. But markets are generally incomplete, and it may
be impossible to hedge against all sources of randomness.
"Indifference Pricing" offers cutting-edge procedures developed
under more realistic market assumptions.
The book begins by introducing the concept of indifference
pricing in the simplest possible models of discrete time and finite
state spaces where duality theory can be exploited readily. It
moves into a more technical discussion of utility indifference
pricing for diffusion models, and then addresses problems of
optimal design of derivatives by extending the indifference pricing
paradigm beyond the realm of utility functions into the realm of
dynamic risk measures. Focus then turns to the applications,
including portfolio optimization, the pricing of defaultable
securities, and weather and commodity derivatives. The book
features original mathematical results and an extensive
bibliography and indexes.
In addition to the editor, the contributors are Pauline
Barrieu, Tomasz R. Bielecki, Nicole El Karoui, Robert J. Elliott,
Said Hamadene, Vicky Henderson, David Hobson, Aytac Ilhan, Monique
Jeanblanc, Mattias Jonsson, Anis Matoussi, Marek Musiela, Ronnie
Sircar, John van der Hoek, and Thaleia Zariphopoulou.The first book
on utility indifference pricing Explains the fundamentals of
indifference pricing, from simple models to the most technical ones
Goes beyond utility functions to analyze optimal risk transfer and
the theory of dynamic risk measures Covers non-Markovian and
partially observed models and applications to portfolio
optimization, defaultable securities, static and quadratic hedging,
weather derivatives, and commodities Includes extensive
bibliography and indexes Provides essential reading for PhD
students, researchers, and professionals"
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