Utility-based pricing and hedging of contingent claims in Almgren-Chriss model with temporary price impact

16 Jun 2020 Ekren Ibrahim Nadtochiy Sergey

In this paper, we construct the utility-based optimal hedging strategy for a European-type option in the Almgren-Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second order terms and the quadratic growth of the first order terms in the associated HJB equation, which makes it difficult to establish sufficient regularity of the value function needed to construct the optimal strategy in a feedback form... (read more)

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