Scaling Limits for Exponential Hedging in the Brownian Framework

In this paper, we consider scaling limits of exponential utility indifference prices for European contingent claims in the Bachelier model. We show that the scaling limit can be represented in terms of the specific relative entropy, and, in addition, we construct asymptotically optimal hedging strategies. To prove the upper bound for the limit, we formulate the dual problem as a stochastic control and show there exists a classical solution to its Hamilton–Jacobi–Bellman (HJB) equation. The proof for the lower bound relies on the duality result for exponential hedging in discrete time.