Well posedness and comparison principle for option pricing with switching liquidity

DOI10.1016/J.NONRWA.2018.03.006zbMATH Open1394.35514arXiv1502.07622OpenAlexW3125055244WikidataQ130064835 ScholiaQ130064835MaRDI QIDQ1644320FDOQ1644320

Authors: Lubin G. Vulkov, Tihomir B. Gyulov 

Publication date: 21 June 2018

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

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.

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

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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)

Cites Work

• Title not available (Why is that?)
• Title not available (Why is that?)
• 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
• Numerical analysis and simulation of European options under liquidity shocks: a coupled semilinear system approach with new IMEX methods
• Fully Implicit Time-Stepping Schemes for a Parabolic-ODE System of European Options with Liquidity Shocks

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