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Well posedness and comparison principle for option pricing with switching liquidity. (English) Zbl 1394.35514

Summary: We consider an integro-differential equation which is derived from a system of coupled parabolic PDE and an ODE and describes an European option pricing with liquidity shocks. We study the well-posedness and prove comparison principle for the corresponding initial value problem.

MSC:

35Q91 PDEs in connection with game theory, economics, social and behavioral sciences
35R09 Integro-partial differential equations
91G20 Derivative securities (option pricing, hedging, etc.)
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References:

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