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Asia-Pacific Financial Markets

, Volume 17, Issue 2, pp 151–169 | Cite as

Utility Indifference Hedging with Exponential Additive Processes

  • Thorsten Rheinländer
  • Gallus Steiger
Article

Abstract

We determine the exponential utility indifference price and hedging strategy for contingent claims written on returns given by exponential additive processes. We proceed by linking the pricing measure to a certain second-order semi-linear Integro-PDE. As main application, we study the problem of hedging with basis risk.

Keywords

Utility indifference pricing and hedging Minimal entropy martingale measure Exponential additive processes 

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Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.London School of Economics, Department of StatisticsUniversity of LondonLondonUK
  2. 2.ETH Zürich, D-MATH, ETH-ZentrumZürichSwitzerland

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