On the relation between risk sensitive control and indifference pricing

In this paper the connection between the indifference price and risk sensitive control is explored for stochastic volatility models. It is proved that the indifference price of a European option can be written as the difference of the value functions of two different stochastic optimal control problems. The quasilinear PDEs involved in the solution of this problem are written and under suitable conditions a verification theorem is given.

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