Utility Indifference Pricing with High Risk Aversion and Small Linear Price Impact

Published 31 Oct 2021 in q-fin.MF and q-fin.PM | (2111.00451v2)

Abstract: We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options and we compute their non-trivial scaling limit for a vanishing price impact which is inversely proportional to the risk aversion. Moreover, we find explicitly a family of portfolios which are asymptotically optimal.

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