This paper is to investigate the controllability and observability properties of linear and certain nonlinear Black-Scholes (B-S) type equations consisting of N stocks in an appropriate bounded domain I of ℝ + N . In this model both the stock volatility and interest rate are influenced by the stock prices and the control which is related to the hedging ratio in option pricing of finance is distributed over a subdomain of I. The proof of the controllability result for the linear B-S equations relies on the suitable observability inequality for the associated adjoint problem, and for the nonlinear model, fixed point technique is applied. Our result leads to that the dynamic hedgibility in finance is proved in the context of controllability theory.
|Number of pages||25|
|Journal||Acta Applicandae Mathematicae|
|Publication status||Published - 2010 Sept|
Bibliographical noteFunding Information:
Acknowledgements The first author work was supported by the Brain Korea 21 project at Yonsei University, 2008 and the second author work was supported by the Korea Research Foundation Grant funded by the Korean Government (MOEHRD, Basic Research Promotion Fund) (KRF-2008-314-C00045) and in part by the MKE and KIAT through the Workforce Development Program in Strategic Technology.
All Science Journal Classification (ASJC) codes
- Applied Mathematics