Utility indifference pricing of derivatives written on industrial loss indices

Gunther Leobacher; Philip Ngare

doi:10.1016/j.cam.2015.11.028

Utility indifference pricing of derivatives written on industrial loss indices

Gunther Leobacher
, Philip Ngare

Institute of Financial Mathematics and Applied Number Theory

Research output: Contribution to journal › Article › peer-review

Abstract

We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modeled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a CAT (spread) option written on that index using utility indifference pricing and present numerical examples.

Original language	English
Pages (from-to)	68-82
Number of pages	15
Journal	Journal of Computational and Applied Mathematics
Volume	300
DOIs	https://doi.org/10.1016/j.cam.2015.11.028
Publication status	Published - Jul 2016

Fields of science

101 Mathematics
101007 Financial mathematics
101019 Stochastics

JKU Focus areas

Computation in Informatics and Mathematics

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10.1016/j.cam.2015.11.028

Cite this

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title = "Utility indifference pricing of derivatives written on industrial loss indices",

abstract = "We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modeled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a CAT (spread) option written on that index using utility indifference pricing and present numerical examples.",

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language = "English",

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AU - Leobacher, Gunther

AU - Ngare, Philip

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AB - We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modeled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a CAT (spread) option written on that index using utility indifference pricing and present numerical examples.

UR - http://arxiv.org/pdf/1404.0879v1

U2 - 10.1016/j.cam.2015.11.028

DO - 10.1016/j.cam.2015.11.028

M3 - Article

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VL - 300

SP - 68

EP - 82

JO - Journal of Computational and Applied Mathematics

JF - Journal of Computational and Applied Mathematics

ER -

Utility indifference pricing of derivatives written on industrial loss indices

Abstract

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