Regularity results for a class of semilinear parabolic degenerate equations and applications

DOI10.4310/CMS.2003.V1.N2.A2MaRDI QIDQ2583436zbMATH OpenOpenAlexFDO

Publication date 16 January 2006

Published in Communications in Mathematical Sciences (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/math/0109225

degenerate parabolic equations mathematical finance regularity semilinear viscosity solutions

Smoothness and regularity of solutions to PDEs (35B65) Nonlinear parabolic equations (35K55) Degenerate parabolic equations (35K65)

Abstract: We consider a possibly strongly degenerate parabolic semilinear problem which can be applied to a differential model for pricing financial derivatives. We prove the asked regularity for applying the Ito's formula which is used for building the differential model.

Review text

The regularity of bounded viscosity solutions for the semilinear parabolic equation of degenerate type \[ u_t +H(x,t,u,Du,D^2u)=0 \] is investigated. The Hamiltonian function is given by \[ H(x,t,u,p,X)= - \text{tr}(\sigma'(t)\sigma(t)X) +(\mu(x,t),p) +\lambda(u)| \sigma(t)p| ^2 +\eta(u)(\sigma(t)p,\omega(x,t)) +f(x,t,u), \] where \(\sigma(t)\) is \(d\times n\) matrix, \(d\leq n\) -- the spatial dimension, \(\sigma'\) is transpose matrix. The specific structure of Hamiltonian comes from a problem in mathematical finance. The parabolicity can be strongly degenerate (for \(d<n\) -- must be); also no monotonicity with respect to \(u\) possessed. Under suitable assumptions on the coefficients, the bounded viscosity solution is proved to be \(W^2_\infty\) in \(x\) and Lipschitz continuous in \(t\).

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