Indifference valuation in incomplete binomial models (Q613732)

The authors deal with so called indifference valuation under the exponential preferences i.e. the nonlinear pricing induced by the exponential utility function \[ \varphi(x)= - \exp(-\lambda x), \;\;\; \lambda >0. \] The goal is to determine the prices of contingent claims, which depend on one traded asset and one non-traded factor. This is performed for the binomial models. The authors provide two iterative pricing algorithms based respectively on the minimal martingale and minimal entropy measures.