International Journal of Mathematics and Mathematical Sciences
Volume 32 (2002), Issue 7, Pages 401-410
doi:10.1155/S016117120211101X
Pricing multi-asset financial derivatives with time-dependent parameters -- Lie algebraic approach
C.F. Lo1
and C.H. Hui2
1Department of Physics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong
2Banking Policy Department, Hong Kong Monetary Authority, 30th Floor, 3 Garden Road, Hong Kong
Abstract
We present a Lie algebraic technique for the valuation of multi-asset financial derivatives with time-dependent parameters. Exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to derive analytical closed-form pricing formulae very straightforwardly. We believe that this new approach will provide an efficient and easy-to-use method for the valuation of financial derivatives.