Optimal reflection of diffusions and barrier options pricing under constraints
Bouchard, Bruno (2008), Optimal reflection of diffusions and barrier options pricing under constraints, SIAM Journal on Control and Optimization, 47, 4, p. 1785–1813. http://dx.doi.org/10.1137/070697161
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Article accepté pour publication ou publiéDate
2008Journal name
SIAM Journal on Control and OptimizationVolume
47Number
4Publisher
Society for Industrial and Applied Mathematics
Pages
1785–1813
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Bouchard, BrunoAbstract (EN)
We introduce a new class of control problems in which the gain depends on the solu- tion of a stochastic differential equation (SDE) reflected at the boundary of a bounded domain, along directions which are controlled by a bounded variation process. We provide a PDE characterization of the associated value function. This study is motivated by applications in mathematical finance, where such equations are related to the pricing of barrier options under portfolio constraints.Subjects / Keywords
Viscosity solutions; Reflected diffusion; Mathematical FinanceJEL
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