Nonlinear Parabolic Equations Arising in Mathematical Finance
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Publication:4626488
nonlinear parabolic equationsBlack-Scholes theory extensionstochastic dynamic portfolio optimization
Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Portfolio theory (91G10) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Finite volume methods for initial value and initial-boundary value problems involving PDEs (65M08) Optimal stochastic control (93E20)
Abstract: This survey paper is focused on qualitative and numerical analyses of fully nonlinear partial differential equations of parabolic type arising in financial mathematics. The main purpose is to review various non-linear extensions of the classical Black-Scholes theory for pricing financial instruments, as well as models of stochastic dynamic portfolio optimization leading to the Hamilton-Jacobi-Bellman (HJB) equation. After suitable transformations, both problems can be represented by solutions to nonlinear parabolic equations. Qualitative analysis will be focused on issues concerning the existence and uniqueness of solutions. In the numerical part we discuss a stable finite-volume and finite difference schemes for solving fully nonlinear parabolic equations.
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Cited in
(8)- scientific article; zbMATH DE number 5233919 (Why is no real title available?)
- Existence and uniqueness of solutions to a quasilinear parabolic equation with quadratic gradients in financial markets
- A nonlinear partial integro-differential equation from mathematical finance
- Probabilistic approach to solution of nonlinear PDEs arising in financial mathematics
- A non-local free boundary problem arising in a theory of financial bubbles
- Efficient finite difference method for optimal portfolio in a power utility regime-switching model
- A unified numerical approach for a large class of nonlinear Black-Scholes models
- A constructive method for convex solutions of a class of nonlinear Black-Scholes equations
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