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arXiv · 1702.02087

Conditional Davis Pricing

Kasper Larsen·Halil Mete Soner·Gordan Žitković
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Abstract

We study the set of marginal utility-based prices of a financial derivative in the case where the investor has a non-replicable random endowment. We provide an example showing that even in the simplest of settings - such as Samuelson's geometric Brownian motion model - the interval of marginal utility-based prices can be a non-trivial strict subinterval of the set of all no-arbitrage prices. This is in stark contrast to the case with a replicable endowment where non- uniqueness is exceptional. We provide formulas for the end points for these prices and illustrate the theory with several examples.

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Kasper Larsen, Halil Mete Soner, Gordan Žitković. 2017-02-07. Conditional Davis Pricing. https://arxiv.org/abs/1702.02087

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