Regularity of a degenerate parabolic equation appearing in Vecer's unified pricing of Asian options

DOI10.4134/BKMS.2015.52.3.947zbMATH Open1333.35297OpenAlexW1654645594MaRDI QIDQ5265565FDOQ5265565

Authors Hongjie Dong, Seick Kim

Publication date 28 July 2015

Published in Bulletin of the Korean Mathematical Society (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0903.0221

zbMATH Keywords

degenerate parabolic equationregularity of solutionsAsian options

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Smoothness and regularity of solutions to PDEs (35B65) Initial-boundary value problems for second-order parabolic equations (35K20) Degenerate parabolic equations (35K65)

Abstract: Vecer derived a degenerate parabolic equation with a boundary condition characterizing the price of Asian options with generally sampled average. It is well understood that there exists a unique probabilistic solution to such a problem but it remained unclear whether the probabilistic solution is a classical solution. We prove that the probabilistic solutions to Vecer's PDE are regular.

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Cited in

(1)

• On a degenerate parabolic equation arising in pricing of Asian options

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