General indifference pricing with small transaction costs

Dylan Possamaï, Guillaume Royer

Published 2014-01-14, updated 2015-04-04Version 2

We study the utility indifference price of a European option in the context of small transaction costs. Considering the general setup allowing consumption and a general utility function at final time T, we obtain an asymptotic expansion of the utility indifference price as a function of the asymptotic expansions of the utility maximization problems with and without the European contingent claim. We use the tools developed in [54] and [48] based on homogenization and viscosity solutions to characterize these expansions. Finally we study more precisely the example of exponential utilities, in particular recovering under weaker assumptions the results of [6].