EXPLICIT SOLUTIONS FOR A NONLINEAR MODEL OF FINANCIAL DERIVATIVES

L. A. Bordag () and A. Y. Chmakova ()
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L. A. Bordag: Halmstad University, Box 823, 301 18 Halmstad, Sweden
A. Y. Chmakova: Fakultät Mathematik, Naturwissenschaften und Informatik, Brandenburgische Technische Universität Cottbus, Universitätsplatz 3/4, 03044 Cottbus, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2007, vol. 10, issue 01, 1-21

Abstract: Families of explicit solutions are found to a nonlinear Black–Scholes equation which incorporates the feedback-effect of a large trader in case of market illiquidity. The typical solution of these families will have a payoff which approximates a strangle. These solutions were used to test numerical schemes for solving a nonlinear Black–Scholes equation.

Keywords: Black–Scholes model; illiquidity; nonlinearity; explicit solutions (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S021902490700407X

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