Geodesic
Variational analysis for the Black and Scholes equation with stochastic volatility
ESAIM: Mathematical Modelling and Numerical Analysis , Tome 36 (2002) no. 3, pp. 373-395 Cet article a éte moissonné depuis la source Numdam

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We propose a variational analysis for a Black and Scholes equation with stochastic volatility. This equation gives the price of a European option as a function of the time, of the price of the underlying asset and of the volatility when the volatility is a function of a mean reverting Orstein-Uhlenbeck process, possibly correlated with the underlying asset. The variational analysis involves weighted Sobolev spaces. It enables to prove qualitative properties of the solution, namely a maximum principle and additional regularity properties. Finally, we make numerical simulations of the solution, by finite element and finite difference methods.

DOI : 10.1051/m2an:2002018
Classification : 91B28, 91B24, 35K65, 65M06, 65M60
Keywords: degenerate parabolic equations, european options, weighted Sobolev spaces, finite element and finite difference method 
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     author = {Achdou, Yves and Tchou, Nicoletta},
     title = {Variational analysis for the {Black} and {Scholes} equation with stochastic volatility},
     journal = {ESAIM: Mathematical Modelling and Numerical Analysis },
     pages = {373--395},
     year = {2002},
     publisher = {EDP-Sciences},
     volume = {36},
     number = {3},
     doi = {10.1051/m2an:2002018},
     mrnumber = {1918937},
     zbl = {1137.91421},
     language = {en},
     url = {http://geodesic.mathdoc.fr/articles/10.1051/m2an:2002018/}
}
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Achdou, Yves; Tchou, Nicoletta. Variational analysis for the Black and Scholes equation with stochastic volatility. ESAIM: Mathematical Modelling and Numerical Analysis , Tome 36 (2002) no. 3, pp. 373-395. doi: 10.1051/m2an:2002018

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