Eduardo Davila
Institution
Yale University
PhD Year
2014
eduardo.davila@yale.edu
FTG Membership
Member
Website
http://www.eduardodavila.com
Featured Work
Aug 4, 2025
Probability Pricing
This paper extends traditional cash-flow pricing to analyze the willingness-to-pay for changes in probabilities, that is, probability pricing. We show that an agent’s willingness-to-pay for an arbitrary probability perturbation can be expressed as a cash-flow pricing formula for hypothetical cash flows linked to changes in the survival function. Our cash-flow equivalent formulation provides a way to compute hedging strategies and decompose probability prices into expected...
