Article ID Journal Published Year Pages File Type
1900363 Reports on Mathematical Physics 2015 9 Pages PDF
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.

Related Topics
Physical Sciences and Engineering Mathematics Mathematical Physics
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