(1+2)-dimensional Black-Scholes equations with mixed boundary conditions

DOI10.3934/CPAA.2020032MaRDI QIDQ2286191zbMATH OpenOpenAlexWikidataFDO

Authors Junkee Jeon, Jehan Oh

Publication date 10 January 2020

Published in Communications on Pure and Applied Analysis (Search for Journal in Brave)

Full work available at URL https://doi.org/10.3934/cpaa.2020032

zbMATH Keywords

(1+2)-dimensional Black-Scholes equationsanalytical representationdouble-Mellin transformEuropean maximum-quanto look-back optionsmixed boundary conditionparabolic partial differential equationspricing formula

Mathematics Subject Classification ID

Initial-boundary value problems for second-order parabolic equations (35K20) Degenerate parabolic equations (35K65) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Derivative securities (option pricing, hedging, etc.) (91G20)

Review text

This paper deals with the partial differential equation problem: \begin{multline*} \frac{\partial V(t,x,y)}{\partial t}+\frac{\sigma_{x}^2}{2}x^2\frac{\partial^2 V(t,x,y)}{\partial x^2}+\frac{\sigma_{y}^2}{2}x^2\frac{\partial^2 V(t,x,y)}{\partial y^2}+\rho\sigma_{x}\sigma_{y}xy\frac{\partial^2 V(t,x,y)}{\partial x\partial y}\\ +r_{x}x\frac{\partial V(t,x,y)}{\partial x}+r_{y}y\frac{\partial V(t,x,y)}{\partial y}-rV(t,x,y)=0, \end{multline*} \(V(T,x,y)=h(x,y)\), \(\frac{\partial V(t,x,1)}{\partial y}=V(t,x,1)\) on the domain \(\{(t,x,y)\mid 0\le t<T, 0<x<\infty, 0<y<1\}\). Using the double Mellin transform, the authors derive an analytical representation for the solution of considered general \((1+2)\)-dimensional Black-Scholes equation with mixed boundary conditions and obtain a pricing formula of European maximum-quanto look-back options.

Recommendations

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Cites work

• An integral equation representation approach for valuing Russian options with a finite time horizon
• scientific article; zbMATH DE number 5228515 (Why is no real title available?)
• scientific article; zbMATH DE number 3376145 (Why is no real title available?)
• QUANTO LOOKBACK OPTIONS
• The pricing of vulnerable options with double Mellin transforms

Cited in

(6)

• On the multidimensional Black-Scholes partial differential equation
• Far field boundary conditions for Black-Scholes equations
• Burgers and Black–Merton–Scholes equations with real time variable and complex spatial variable
• AN APPLICATION OF MELLIN TRANSFORM TECHNIQUES TO A BLACK–SCHOLES EQUATION PROBLEM
• scientific article; zbMATH DE number 5652616 (Why is no real title available?)
• An alternative method for analytical solutions of two-dimensional Black-Scholes-Merton equation

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