Lie symmetries of (1+2) nonautonomous evolution equations in financial mathematics

DOI10.3390/MATH4020034zbMATH Open1358.91102arXiv1605.01071OpenAlexW2963143086MaRDI QIDQ515423FDOQ515423

Authors: Andronikos Paliathanasis, Richard M. Morris, P. G. L. Leach 

Publication date: 16 March 2017

Published in: Mathematics (Search for Journal in Brave)

Abstract: We analyse two classes of $(1+2)$ evolution equations which are of special interest in Financial Mathematics, namely the Two-dimensional Black-Scholes Equation and the equation for the Two-factor Commodities Problem. Our approach is that of Lie Symmetry Analysis. We study these equations for the case in which they are autonomous and for the case in which the parameters of the equations are unspecified functions of time. For the autonomous Black-Scholes Equation we find that the symmetry is maximal and so the equation is reducible to the $(1+2)$ Classical Heat Equation. This is not the case for the nonautonomous equation for which the number of symmetries is submaximal. In the case of the two-factor equation the number of symmetries is submaximal in both autonomous and nonautonomous cases. When the solution symmetries are used to reduce each equation to a $(1+1)$ equation, the resulting equation is of maximal symmetry and so equivalent to the $(1+1)$ Classical Heat Equation.

Full work available at URL: https://arxiv.org/abs/1605.01071

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zbMATH Keywords

financial mathematicsLie point symmetriesBlack-Scholes equationprices of commodities

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Symmetries, invariants, etc. in context of PDEs (35B06) Financial applications of other theories (91G80)

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Cited In (7)

• Symmetry Reductions of a Hamilton-Jacobi-Bellman Equation Arising in Financial Mathematics
• Lie symmetries and certain equations of financial mathematics
• The Lie symmetry approach on (1+2)-dimensional financial models
• Application of Lie point symmetries to the resolution of certain problems in financial mathematics with a terminal condition
• Nonlocal Symmetries and the Complete Symmetry Group of 1 + 1 Evolution Equations
• Lie symmetry analysis of the Black-Scholes-Merton model for European options with stochastic volatility
• The spectral determinations of some classes of multicone graphs

Uses Software

• Mathematica
• SYM

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