RISK-TOLERANCE WEALTH PROCESSES AND SENSITIVITY ANALYSIS OF UTILITY BASED PRICES

Dmitry Kramkov
(joint work with Mihai Sirbu)

Abstract

We present the asymptotic analysis of the marginal utility based prices of contingent claims in incomplete financial models with respect to the number of these claims held in the portfolio. Our main result states that such an approximation preserves a number of important qualitative properties of the original utility based prices if and only if there is a risk-tolerance wealth process. The talk is based on a joint paper with Mihai Sirbu.