BFS 2002 

Poster Presentation 
Dirk Becherer
We study a rational valuation and hedging principle for contingent claims which integrate tradable and untradable sources of risk. The principle is based on the preferences of a rational investor with constant absolute risk aversion, and uses expontial utility indifference arguments.
In a CoxIto model with multiple assets mutual dependencies between tradable and untradable sources of risk, constructive results on the utilitybased valuation and hedging strategy  and as an aside also on the optimal investment strategy  are obtained in terms of reaction diffusion equations. Possible applications include credit and rating dependent securities. Further properties like diversification and computations methods are obtained in a semicomplete product model.
http://www.math.tuberlin.de/~becherer