Utility indifference pricing of ESO with reload terms

• Main Authors: Fu Yi, Zhang Jizhou, Ji Sulei
• Format: Article
• Language: English
• Published: Academic Journals Center of Shanghai Normal University 2018-02-01
• Series: Journal of Shanghai Normal University (Natural Sciences)
• Subjects: executive stock option(ESO); Hamilton-Jacobi-Bellman(HJB) equation; utility indifference pricing; Green function
• Online Access: http://qktg.shnu.edu.cn/zrb/shsfqkszrb/ch/reader/view_abstract.aspx?file_no=201801001&flag=1

“Nontradable” is one of the important characters of the Executive Stock Option(ESO).Therefore,the ESO cannot be priced by hedging the corresponding underlying asset.In this paper,we study ESO with reload terms by utility indifference method,based on stochastic control theory.We deduce the Hamilton-Jacobi-Bellman(HJB) equation of the pricing model.Using variable substitution and Green function method,we obtain its analytic solution.Finally,we analyze the parameters of the model.