Analytic approach to solve a degenerate parabolic PDE for the Heston model
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Abstract: We present an analytic approach to solve a degenerate parabolic problem associated to the Heston model, which is widely used in mathematical finance to derive the price of an European option on an risky asset with stochastic volatility. We give a variational formulation, involving weighted Sobolev spaces, of the second order degenerate elliptic operator of the parabolic PDE. We use this approach to prove, under appropriate assumptions on some involved unknown parameters, the existence and uniqueness of weak solutions to the parabolic problem on unbounded subdomains of the half-plane.
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Cites work
- A partial differential equation connected to option pricing with stochastic volatility: Regularity results and discretization
- A closed-form solution for options with stochastic volatility with applications to bond and currency options
- A theory of the term structure of interest rates
- Efficient, almost exact simulation of the Heston stochastic volatility model
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- scientific article; zbMATH DE number 3353865 (Why is no real title available?)
- scientific article; zbMATH DE number 2232810 (Why is no real title available?)
- The pricing of options and corporate liabilities
- The semigroup governing the generalized Cox-Ingersoll-Ross equation
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Cited in
(12)- Local and non-local improved Hardy inequalities with weights
- A class of weighted Hardy inequalities and applications to evolution problems
- AMFR-W-methods for parabolic problems with mixed derivates. Applications to the Heston model
- A semigroup approach to generalized Black-Scholes type equations in incomplete markets
- Computational technique for simulating variable-order fractional Heston model with application in US stock market
- Weighted multipolar Hardy inequalities and evolution problems with Kolmogorov operators perturbed by singular potentials
- The Heston stochastic volatility model has a boundary trace at zero volatility
- Analytic solutions and complete markets for the Heston model with stochastic volatility
- Stochastic representation of solutions to degenerate elliptic and parabolic boundary value and obstacle problems with Dirichlet boundary conditions
- \( C^{1,\alpha}\) regularity for degenerate parabolic equations arising from the Heston model
- A class of weighted Hardy type inequalities in \(\mathbb{R}^N\)
- \(C^{1,1}\) regularity for degenerate elliptic obstacle problems
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