Option pricing under path-dependent stock models
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Publication:6417849
arXiv2211.10953MaRDI QIDQ6417849FDOQ6417849
Authors: Kiseop Lee, Seongje Lim, Hyungbin Park 
Publication date: 20 November 2022
Abstract: In this paper, we investigate the differentiability of solutions to path-dependent stochastic differential equations (SDEs). Given an SDE with path-dependent coefficients having Fr`{e}chet derivatives, we prove the differentiability of the SDE solution with respect to the initial path. As applications, PDE representations and sensitivities of option prices are studied. Under path-dependent stock models, an option price is differentiable with respect to time and the path, and is given as a solution to the path-dependent PDE. In addition, we provide formulas for Greeks with path-dependent coefficient perturbations. A stock model having coefficients with time integration forms of paths is covered as an example.
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