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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|Date of creation:||04 Jul 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/|
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