Degenerate evolution equations in weighted continuous function spaces, Markov processes and the Black--Scholes equation. I. (Q1412399)

This contribution is the first of a two-paper series by the authors; the second part appeared [ibid., 212--228 (2002; Zbl 1059.47045), see the following review]. Here the authors investigate a problem related to initial boundary problems associated with a class of degenerate second-order differential operators on real intervals in the framework of weighted continuous function spaces. In order to develop their semigroup approach, the authors provide general tools connected to the generation of positive strongly continuous semigroups and their relationship with Markov processes. This analysis is set in the theory of weighted spaces of continuous functions on a locally compact space. The differential operators referred to are useful when constructing a certain class of models that occur in mathematical finance. The paper has an introduction which is separate from the two sections that form the main body of the article. Section 1 considers some notational conventions and familiar results on function spaces and Markov processes. The second section concentrates on positive semigroups and Markov processes on weighted function spaces. In this section, the authors prove a generation result for strongly continuous positive semigroups on the weighted continuous function space \(C_0^w(\mathcal{X})\) of all functions \(f \in C(\mathcal{X})\) such that \(w f \in C_0(\mathcal{X}).\) Here, \(C(\mathcal{X})\) is the vector space of all real-valued continuous functions on the locally compact Hausdorff space with a countable base, \(\mathcal{X}.\) Also, \(C_0(\mathcal{X})\) is the vector space of all functions in \(C(\mathcal{X})\) tending to 0 at infinity. The result characterizes among these semigroups the transition semigroups associated with some transition functions or Markov processes. This result itself is proved by a similarity procedure related to the spaces \(C_0(\mathcal{X})\) and \(C_0^w(\mathcal{X}).\) Furthermore, the paper contains additive and multiplicative perturbation results that can be regarded as applications of standard semigroup techniques. The last few results expose a connection between the preceding analysis and Markov processes. Here the positive semigroups on the \(C_0^w(\mathcal{X})\) which are the transition semigroups associated with suitable Markov processes are characterized.