Pricing options in illiquid markets: optimal systems, symmetry reductions and exact solutions
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Publication:694335
DOI10.1134/S1995080210020022zbMATH Open1254.91721arXiv1002.0864OpenAlexW2238029017MaRDI QIDQ694335FDOQ694335
Authors: Ljudmila A. Bordag 
Publication date: 12 December 2012
Published in: Lobachevskii Journal of Mathematics (Search for Journal in Brave)
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.
Full work available at URL: https://arxiv.org/abs/1002.0864
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Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
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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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