A system of non-local parabolic PDE and application to option pricing

Anindya Goswami (), Jeeten Patel and Poorva Shevgaonkar

Papers from arXiv.org

Abstract: This paper includes a proof of well-posedness of an initial-boundary value problem involving a system of degenerate non-local parabolic PDE which naturally arises in the study of derivative pricing in a generalized market model. In a semi-Markov modulated GBM model the locally risk minimizing price function satisfies a special case of this problem. We study the well-posedness of the problem via a Volterra integral equation of second kind. A probabilistic approach, in particular the method of conditioning on stopping times is used for showing uniqueness.

Date: 2015-06, Revised 2016-05
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Citations: View citations in EconPapers (10)

Published in Stoch. Anal. Appl. 34(2016) no. 5, 893-905

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1506.01467

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