Lie Symmetry Analysis of a First-Order Feedback Model of Option Pricing

Winter Sinkala and Tembinkosi F. Nkalashe

Advances in Mathematical Physics, 2015, vol. 2015, 1-9

Abstract:

A first-order feedback model of option pricing consisting of a coupled system of two PDEs, a nonliner generalised Black-Scholes equation and the classical Black-Scholes equation, is studied using Lie symmetry analysis. This model arises as an extension of the classical Black-Scholes model when liquidity is incorporated into the market. We compute the admitted Lie point symmetries of the system and construct an optimal system of the associated one-dimensional subalgebras. We also construct some invariant solutions of the model.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlamp:361785

DOI: 10.1155/2015/361785

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