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Two ways to solve, using Lie group analysis, the fundamental valuation equation in the double-square-root model of the term structure. (English) Zbl 1221.35418

Summary: Two approaches based on Lie group analysis are employed to obtain the closed-form solution of a partial differential equation derived by F. A. Longstaff [J. Fin. Econom. 23, 195–224 (1989)] for the price of a discount bond in the double-square-root model of the term structure.

MSC:

35Q91 PDEs in connection with game theory, economics, social and behavioral sciences
35A30 Geometric theory, characteristics, transformations in context of PDEs
91G80 Financial applications of other theories
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