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Finance and Stochastics

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01.04.2015

A model for a large investor trading at market indifference prices. I: Single-period case

verfasst von: Peter Bank, Dmitry Kramkov

Erschienen in: Finance and Stochastics | Ausgabe 2/2015

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Abstract

We develop a single-period model for a large economic agent who trades with market makers at their utility indifference prices. We compute the sensitivities of these market indifference prices with respect to the size of the investor’s order. It turns out that the price impact of an order is determined both by the market makers’ joint risk tolerance and by the variation of individual risk tolerances. On a technical level, a key role in our analysis is played by a pair of conjugate saddle functions associated with the description of Pareto optimal allocations in terms of the aggregate utility function.

Vorheriger Artikel Utility maximization with current utility on the wealth: regularity of solutions to the HJB equation

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We are grateful to an anonymous referee for suggesting this justification of our model.

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Titel: A model for a large investor trading at market indifference prices. I: Single-period case
verfasst von: Peter Bank
Dmitry Kramkov
Publikationsdatum: 01.04.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: Finance and Stochastics / Ausgabe 2/2015
Print ISSN: 0949-2984
Elektronische ISSN: 1432-1122
DOI: https://doi.org/10.1007/s00780-015-0258-y

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