Well posedness and comparison principle for option pricing with switching liquidity

DOI10.1016/J.NONRWA.2018.03.006MaRDI QIDQ1644320zbMATH OpenOpenAlexWikidataFDO

Authors Lubin G. Vulkov, Tihomir B. Gyulov

Publication date 21 June 2018

Published in Nonlinear Analysis. Real World Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1502.07622

zbMATH Keywords

option pricingcomparison principlewell-posednessintegro-differential equationBuyer's indifference priceswitching liquidity

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Integro-partial differential equations (35R09)

Abstract: We consider an integro-differential equation derived from a system of coupled parabolic PDE and an ODE which describes an European option pricing with liquidity shocks. We study the well-posedness and prove comparison principle for the corresponding initial value problem.

Recommendations

• Option prices under liquidity risk as weak solutions of semilinear diffusion equations
• EUROPEAN OPTION PRICING WITH LIQUIDITY SHOCKS
• Numerical solution of a stochastic control problem of option pricing for a liquidity switching market
• NUMERICAL SOLUTIONS OF OPTION PRICING MODEL WITH LIQUIDITY RISK
• Valuation of European options with liquidity shocks switching by fitted finite volume method

Cites work

• scientific article; zbMATH DE number 412120 (Why is no real title available?)
• scientific article; zbMATH DE number 3264298 (Why is no real title available?)
• EUROPEAN OPTION PRICING WITH LIQUIDITY SHOCKS
• Indifference valuation of mortgage-backed securities in the presence of prepayment risk

Cited in

(8)

• Numerical solution of a stochastic control problem of option pricing for a liquidity switching market
• Penalty method for indifference pricing of American option in a liquidity switching market
• Implicit-Explicit Schemes for European Option Pricing with Liquidity Shocks
• Well-posed and ill-posed situations in option pricing problems when the volatility is purely time-dependent
• Valuation of European options with liquidity shocks switching by fitted finite volume method
• Option prices under liquidity risk as weak solutions of semilinear diffusion equations
• Fully Implicit Time-Stepping Schemes for a Parabolic-ODE System of European Options with Liquidity Shocks
• Numerical analysis and simulation of European options under liquidity shocks: a coupled semilinear system approach with new IMEX methods

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