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arXiv · 1102.3516

Option pricing in the large risk aversion, small transaction cost limit

Ryan Hynd
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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.

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Ryan Hynd. 2014-05-27. Option pricing in the large risk aversion, small transaction cost limit. https://arxiv.org/abs/1102.3516

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