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Article

Yam, Phillip S. C. ; Yang, Hailiang
On valuation of derivative securities: A Lie group analytical approach. (English). Applications of Mathematics, vol. 51 (2006), issue 1, pp. 49-61
MSC: 49L25, 60G40, 91B24 | MR 2197322 | Zbl 1164.60359 | DOI: 10.1007/s10492-006-0004-z
Keywords:
Lie groups; infinitesimal transformations; invariants; pricing of derivative securities; Bessel equations; Bessel functions
Summary:
This paper proposes a Lie group analytical approach to tackle the problem of pricing derivative securities. By exploiting the infinitesimal symmetries of the Boundary Value Problem (BVP) satisfied by the price of a derivative security, our method provides an effective algorithm for obtaining its explicit solution.
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