Pricing options in illiquid markets: optimal systems, symmetry reductions and exact solutions

DOI10.1134/S1995080210020022MaRDI QIDQ694335zbMATH OpenOpenAlexFDO

Authors Ljudmila A. Bordag

Publication date 12 December 2012

Published in Lobachevskii Journal of Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1002.0864

zbMATH Keywords

Lie group analysisnonlinearityexplicit solutionsilliquid market

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Abstract: We study a class of nonlinear pricing models which involves the feedback effect from the dynamic hedging strategies on the price of asset introduced by Sircar and Papanicolaou. We are first to study the case of a nonlinear demand function involved in the model. Using a Lie group analysis we investigate the symmetry properties of these nonlinear diffusion equations. We provide the optimal systems of subalgebras and the complete set of non-equivalent reductions of studied PDEs to ODEs. In most cases we obtain families of exact solutions or derive particular solutions to the equations.

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Cites work

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Cited in

(9)

• Group analysis of the Guéant and Pu model of option pricing and hedging
• Lie symmetry analysis of a first-order feedback model of option pricing
• Lie symmetry reductions and exact solutions of an option-pricing equation for large agents
• Application of Lie point symmetries to the resolution of certain problems in financial mathematics with a terminal condition
• Study of the risk-adjusted pricing methodology model with methods of geometrical analysis
• Invariant solutions for nonlinear models of illiquid markets
• Lie group analysis of nonlinear Black-Scholes models
• On Option-Valuation in Illiquid Markets: Invariant Solutions to a Nonlinear Model
• Models of self-financing hedging strategies in illiquid markets: symmetry reductions and exact solutions

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