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
TypeArticle accepté pour publication ou publié
Journal nameSIAM Journal on Control and Optimization
Society for Industrial and Applied Mathematics
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Abstract (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 / KeywordsViscosity solutions; Reﬂected diﬀusion; Mathematical Finance
JELG10 - General
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