Explicit solutions for a nonlinear model of financial derivatives

Details Explicit solutions for a nonlinear model of financial derivatives Explicit solutions for a nonlinear model of financial derivatives

2006-04-05

arxiv.org/abs/math/0604117v1

International Journal of Theoretical and Applied Finance (IJTAF), 2007, v. 10, no 1, pp 1-21.

Mathematics

Analysis of PDEs

24 pages, 10 figures

Scientific paper

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.

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