The Mathematical Institute, University of Oxford, Eprints Archive

Indifference Pricing in a Basis Risk Model with Stochastic Volatility

Lam, Kwok-Chung Ivan (2011) Indifference Pricing in a Basis Risk Model with Stochastic Volatility. Masters thesis, oxford university.

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Abstract

The aim of this dissertation is to study exponential indifference pricing in a basis risk model of one tradable asset and one correlated non-tradable asset in which a claim on the non-tradable asset is hedged using the tradable asset. We extend this to incorporate stochastic volatilities for both assets, driven by a common stochastic factor, and look for the corresponding indifference price characterisation under such a model. We would also look at the optimal portfolio in hedging the claim on the non-tradable asset, the residual risk process and the payoff decomposition of the claim involving the indifference price process and a local martingale. Towards the end of the discussion, we would outline a procedure which one could use to obtain numerical results for the indifference price under this model.

Item Type:Thesis (Masters)
Subjects:H - N > Mathematics education
Research Groups:Mathematical and Computational Finance Group
ID Code:1377
Deposited By:Laura Auger
Deposited On:13 Aug 2011 09:59
Last Modified:13 Aug 2011 09:59

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