On the regularity of solutions to a nonlinear ultraparabolic equation arising in mathematical finance (Q1848302)

Let \(\Omega\) be an open set in \(\mathbb{R}^3\) and \(f \in C^\infty(\Omega).\) The authors prove that if \(u\) is a classical solution of the nonlinear degenerate parabolic equation \[ \partial_{xx} u + u \partial_y u - \partial_t u = f \] such that \(\partial_x u(z)\) is different from 0, \(z \in \Omega,\) then \(u \in C^\infty (\Omega).\) The above condition is fundamental not only because it is suggested by a model, but also because if it is cancelled the equation could have nonregular solution. This kind of equation is very useful in some problems of mathematical finance, in particular in the study of agent's decisions under risk. To obtain their regularity result the use a harmonic analysis technique on Lie groups based on a weak definition of local uniform convergence and on the representation of higher-order derivatives as limits of suitable different quotients.