OPTION PRICE FOR BACHELIER MODEL WITH CONSTRAINTS
Journal Title: Інфраструктура ринку - Year 2018, Vol 19, Issue
Abstract
A method of determination of solutions of stochastic equation in financial models with a given boundary conditions was developed. The method is based on Fokker–Planck equation for conditional probability density that corresponds to stochastic equation. The built solutions for conditional probability density satisfy zero probability flow at the boundaries. By means of substitution the problem was reduced to building solutions with Neumann boundary condition for which a well-known methods of mathematical physics were used. The algorithm considered here is demonstrated on the example of Bachelier model for assets pricing. The European option call prices was etermined. Comparisons with a known results were carried out.
Authors and Affiliations
V. S. Yanishevsky
Keywords
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- EP ID EP665613
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