2013/11/16 by Wenqing Bao, Bao, Wenqing, Chunli Chen +3
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Financial Risk and Volatility Modeling #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1311.4074
openalex publication_date 2013/11/16 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
With some transformations, we convert the problem of option pricing under\nstate-dependent volatility into an initial value problem of the Fokker-Planck\nequation with a certain potential. By using the Lie symmetry analysis and\nsimilarity reduction method, we are able to reduce the dimensions of the\npartial differential equation and find some of its particular solutions of the\nequation. A few case studies demonstrate that our new method can be used to\nproduce analytical option pricing formulas for certain volatility functions.\n