A semigroup approach to generalized Black-Scholes type equations in incomplete markets

JOURNAL OF MATHEMATICAL ANALYSIS AND APPLICATIONS

卷:477

Article

Bufalo, Michele¹  Mininni, Rosa Maria²  Romanelli, Silvia² 

[1] Univ Roma La Sapienza, Dipartimento Metodi & Modelli Econ Terr & Finanza, Via Castro Laurenziano 9, I-00185 Rome, Italy

[2] Univ Bari Aldo Moro, Dipartimento Matemat, Via Orabona 4, I-70125 Bari, Italy

关键词: Option pricing;    Indifference price;    Partial differential equations;    (C-0) semigroups;    Approximate pricing formula;    Numerical tests;   

DOI  :  10.1016/j.jmaa.2019.05.008

来源: Elsevier

【 摘 要 】

In this paper we will study an option pricing problem in incomplete markets by an analytic point of view. The incompleteness is generated by the presence of a non- traded asset. The aim of this paper is to use the semigroup theory in order to prove existence and uniqueness of solutions to generalized Black-Scholes type equations that are non-linearly associated with the price of European claims written exclusively on non-traded assets. Then, we derive analytic expressions of the solutions. An approximate representation in terms of a generalized Feynman-Kac type formula is derived in cases where an explicit closed form solution is not available. Numerical examples are also given (see Appendix E) where theoretical approximations and numerical tests reveal a remarkable agreement. (C) 2019 Elsevier Inc. All rights reserved.

【 授权许可】

Free