A Homotopy Analysis Method for the Option Pricing PDE in Post-Crash Markets

Youssef El-Khatib

Mathematical Economics Letters, 2014, vol. 2, issue 3-4, 45-50

Abstract: We investigate a solution for the option pricing partial differential equation (PDE) in a market suffering from a financial crisis. The post-crash model assumes that the volatility is stochastic. It is an extension of the famous Black and Scholes model. Therefore, the option pricing PDE for the crisis model is a generalization of the Black and Scholes PDE. However, to the best knowledge, it does not have a closed form solution for the general case. In this paper, we provide a solution for the pricing PDE of a European option during financial crisis using the homotopy analysis method.

Keywords: Black-Scholes PDE; Options; Financial Crisis; Homotopy Analysis Method; Black-Scholes PDE; Options; Financial Crisis; Homotopy Analysis Method (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/mel-2013-0014

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