Degenerate Kolmogorov equations in option pricing

We propose the use of a classical tool in PDE theory, the parametrix method, to build approximate solutions to generic parabolic models for pricing and hedging contingent claims. We obtain an expansion for the price of an option using as starting point the classical Black and Scholes formula. The approximation can be truncated to any number of terms and easily computable error measures are available.

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Year of publication:	2006-07-04
Authors:	Pascucci, Andrea ; Corielli, Francesco
Institutions:	Society for Computational Economics - SCE
Subject:	option pricing \| degenerate parabolic equations \| parametrix

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Series:	Computing in Economics and Finance 2006.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Computing in Economics and Finance 2006 Number 268
Classification:	C69 - Mathematical Methods and Programming. Other
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005132600