Integro-differential equations for option prices in exponential Lévy models (Q2488481)

The authors explore the precise link between option prices in exponential Lévy models and the related partial-differential equations (PIDEs) in the case of European and barrier options with single and double barriers. They discuss conditions under which option prices are classical solutions of the PIDEs and show that these conditions may fail in pure jump models leading to the lack of smoothness with respect to the underlying. The notion of a viscosity solution allows to cover this case, namely, the sufficient conditions on the Lévy triplet are given for the option price to be continuous. In this case the option price is the solution of the PIDE in the viscosity sense.