Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1900363 | Reports on Mathematical Physics | 2015 | 9 Pages |
Abstract
We discuss the probabilistic representation of the solutions of the heat equation perturbed by a repulsive point interaction in terms of a perturbation of Brownian motion, via a Feynman–Kac formula involving a local time functional. An application to option pricing is given, interpolating between the extreme cases of classical Black–Scholes options and knockouts having the barrier situated exactly at the exercise price.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Mathematical Physics
Authors
Sergio Albeverio, Silvestro Fassari, Fabio Rinaldi,