Utility-based pricing of stochastic income

Thesis

In this thesis we investigate an optimal investment problem for an investor who also receives an unhedegable stochastic income stream. We extend the log-Brownian model of Henderson to a stochastic volatility model where the underlying market is incomplete and the income is a function of the stock volatility. With exponential preferences, explicit solutions to the primal and dual problems are possible using extensions of the distortion power solution of Zariphopoulou and Henderson. We deriv...

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Authors: Angus, I; Ian Angus

• Publication date: 2012
• Type of award: MSc
• Level of award: Masters
• Awarding institution: University of Oxford
• Language: English
• Keywords: indifference pricing; utility maximisation; distortion solution; marginal utility-based price; stochastic volatility; stochastic income
• Subjects: Mathematical finance