Martingale optimality, BSDE and cross hedging of insurance derivatives
|
Fri, 06/03/2009 14:15 |
Peter Imkeller (Humboldt) |
Nomura Seminar  |
DH 3rd floor SR |
| A financial market model is considered on which agents (e.g. insurers) are subject to an exogenous financial risk, which they trade by issuing a risk bond. Typical risk sources are climate or weather. Buyers of the bond are able to invest in a market asset correlated with the exogenous risk. We investigate their utility maximization problem, and calculate bond prices using utility indi®erence. This hedging concept is interpreted by means of martingale optimality, and solved with BSDE and Malliavin's calculus tools. Prices are seen to decrease as a result of dynamic hedging. The price increments are interpreted in terms of diversification pressure. | |||