On a degenerate parabolic equation arising in pricing of Asian options

DOI10.1016/J.JMAA.2008.10.019MaRDI QIDQ2518299zbMATH OpenOpenAlexFDO

Authors Seick Kim

Publication date 15 January 2009

Published in Journal of Mathematical Analysis and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0805.1101

zbMATH Keywords

Asian optionsdegenerate parabolic equationnon-smooth boundary conditionone space dimensionregularity of solutions

Mathematics Subject Classification ID

Generalized solutions to partial differential equations (35D99) Degenerate parabolic equations (35K65) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Abstract: We study a certain one dimensional, degenerate parabolic partial differential equation with a boundary condition which arises in pricing of Asian options. Due to degeneracy of the partial differential operator and the non-smooth boundary condition, regularity of the generalized solution of such a problem remained unclear. We prove that the generalized solution of the problem is indeed a classical solution.

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Cites work

• scientific article; zbMATH DE number 732507 (Why is no real title available?)
• scientific article; zbMATH DE number 1061253 (Why is no real title available?)
• Hypoelliptic second order differential equations

Cited in

(7)

• A continuous dependence result for ultraparabolic equations in option pricing
• Wellposedness of the boundary value formulation of a fixed strike Asian option
• Existence of a fundamental solution of partial differential equations associated to Asian options
• Essentially exact asymptotic solutions for Asian derivatives
• SOME RESULTS ON PARTIAL DIFFERENTIAL EQUATIONS AND ASIAN OPTIONS
• The stochastic solution to a Cauchy problem for degenerate parabolic equations
• Regularity of a degenerate parabolic equation appearing in Vecer's unified pricing of Asian options

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