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Pricing American Options Using Convex Risk Measures

**Speaker:** Hussein Nasralah from WPI

**Time:** 12/10/2020 2-2:50pm

**Abstract:*** In this talk, we propose a definition for the price of an American option in an incomplete market using the methodology of indifference pricing. In particular, we price options using dynamic monetary convex risk measures given by backward stochastic differential equations, with the driver of the BSDE (R,Z) assumed to be of quadratic growth in the variable z. The proposed risk-indifference price of the American option has the form of a sum of a BSDE term and a continuously reflected BSDE term. To compute the price numerically, we show that the continuously reflected BSDE term can be approximated by a BSDE which is reflected at discretely many time points.*