Numerical Solution of a parabolic problem arising in finance
arXiv:0905.28601 citations
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Provides theoretical and numerical tools for pricing in incomplete markets, relevant to quantitative finance.
The paper proves existence and uniqueness of solutions to a PDE system arising from optimal replication in incomplete markets, and proposes a numerical method to compute the optimal strategy.
The optimal replication strategy for incomplete markets is obtained by solving a system of partial differential equations. In this paper, we study existence and uniqueness of the solution in suitable Sobolev spaces and propose a numerical method to compute the optimal strategy