Valuation of financial derivatives with time-dependent parameters: Lie-algebraic approach

C. F. Lo and C. H. Hui

Quantitative Finance, 2001, vol. 1, issue 1, 73-78

Abstract: Based upon the Wei-Norman theorem, this paper presents a Lie-algebraic technique for the pricing of financial derivatives with time-dependent parameters. By exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to derive analytical closed-form pricing formulae very straightforwardly. We believe that this new approach will provide an efficient method for the valuation of financial derivatives.

Date: 2001
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DOI: 10.1080/713665552

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