Option pricing in the large risk aversion, small transaction cost limit
Analysis of PDEs
2014-05-28 v6
Abstract
We characterize the price of a European option on several assets for a very risk averse seller, in a market with small transaction costs as a solution of a nonlinear diffusion equation. This problem turns out to be one of asymptotic analysis of parabolic PDE, and the interesting feature is the role of a nonlinear PDE eigenvalue problem. In particular, we generalize previous work of Guy Barles and H. Mete Soner who studied this problem for a European option on a single asset.
Keywords
Cite
@article{arxiv.1102.3516,
title = {Option pricing in the large risk aversion, small transaction cost limit},
author = {Ryan Hynd},
journal= {arXiv preprint arXiv:1102.3516},
year = {2014}
}