THE WEAK SOLUTION OF BLACK-SCHOLE’S OPTION PRICING MODEL WITH TRANSACTION COST
THE WEAK SOLUTION OF BLACK-SCHOLE’S OPTION
PRICING MODEL WITH TRANSACTION COST
Bright O. Osu and Chidinma Olunkwa
Department of Mathematics, Abia State University, Uturu, Nigeria
ABSTRACT
This paper considers the equation of the type
− + + = , ( , ) ∈ ℝ × (0, );
which is the Black-Scholes option pricing model that includes the presence of transaction cost. The
existence, uniqueness and continuous dependence of the weak solution of the Black-Scholes model with
transaction cost are established.The continuity of weak solution of the parameters was discussed and
similar solution as in literature obtained.
KEYWORDS
Black-Scholes Model, Option pricing, Transaction costs, Weak solution,Sobolev space
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