Dynamic indifference pricing via the G-expectation

TL;DR

This paper develops a framework for dynamic indifference pricing under ambiguity using G-expectation, analyzing risk preferences, consistency, and comparative statics for agents with uncertain beliefs.

Contribution

It introduces a novel dynamic expected utility model with ambiguity via G-expectation, extending indifference pricing theory to ambiguous environments.

Findings

Established dynamic consistency of indifference prices with ambiguity

Derived risk aversion and certainty equivalents under G-expectation

Provided comparative statics results for ambiguity preferences

Abstract

We study the dynamic indifference pricing with ambiguity preferences. For this, we introduce the dynamic expected utility with ambiguity via the nonlinear expectation--G-expectation, introduced by Peng (2007). We also study the risk aversion and certainty equivalent for the agents with ambiguity. We obtain the dynamic consistency of indifference pricing with ambiguity preferences. Finally, we obtain comparative statics.