Project CEMAPRE internal
| Title | Option pricing in Lévy models with transaction costs |
| Participants | Nicola Cantarutti, Manuel Guerra, João Guerra (Principal Investigator) |
| Summary | Partial integro-differential equations (PIDE's) appear in option pricing models with jumps. These equations generalize the Black-Scholes PDE when the continuous diffusion dynamics for the underlying price is replaced by a Lévy process dynamics (including jumps). The integral operator in the PIDE propagates a possible irregularity of the solution. Our main goals are: _develop a Markov chain approximation for the optimization problem related to the option pricing problem in a exponential Lévy model market with transaction costs, _prove the convergence of this Markov chain approximation and, if possible, _prove the existence of a viscosity solution for the PIDE associated to this problem. |