Obstacle problem for nonlinear integro-differential equations arising in option pricing (Q2467933)

In this paper, the author considers the following obstacle problem for a class of integro-partial differential equations of the second order: \[ \begin{cases} \min\{\partial_t u + F(x,t,u,\varphi u,Du,D^2 u),u-u_0 \}=0, & (x,t)\in\mathbb{R}^N \times(0,T],\\ u(x,0)=u_0(x,0), & x\in \mathbb{R}^N, \end{cases} \] where \(F\) is degenerate elliptic, quasi-monotone with respect to \(u\), and monotone with respect to \( \varphi u(x,t) = \int_{\mathbb{R}^N} M(u(x+z,t),u(x,t))\,d\mu_{x,t};\mu_{x,t}\) is a finite measure; \(M\) is a Lipschitz continuous function. The author used the theory of viscosity solutions to prove that problem (1) is stable with respect to penalization. And for the special case, when \(F\) is semilinear, the author proved a comparison principle, existence and uniqueness of solution, and regularity results. Furthermore, the author applied the obtained results to the pricing of American derivatives in jump-diffusion markets with large investor.