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Valuing risky income streams in incomplete markets |
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| Authors: | C Johnson Y Omar P Ouwehand |
| Institution: | 1. PeregrineQuant , 6th Floor, Letterstedt House, Fedsure on Main, Newlands 7700, South Africa;2. School of Economics , University of Cape Town , Rondebosch 7701, South Africa;3. Department of Mathematics and Applied Mathematics , University of Cape Town , Rondebosch 7701, South Africa E-mail: peter@maths.uct.ac.za |
| Abstract: | A model for pricing and hedging in incomplete markets is proposed. This model is derived from expected utility theory, and a connection with the traditional no‐arbitrage framework is noted. It is shown that the CGM model can be implemented to value risky assets in incomplete markets. |
| Keywords: | pricing in incomplete markets expected utility coherent risk measures |