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Obstacle problems for nonlocal operators

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  • Donatella Danielli
  • Arshak Petrosyan
  • Camelia A. Pop

Abstract

We prove existence, uniqueness, and regularity of viscosity solutions to the stationary and evolution obstacle problems defined by a class of nonlocal operators that are not stable-like and may have supercritical drift. We give sufficient conditions on the coefficients of the operator to obtain H\"older and Lipschitz continuous solutions. The class of nonlocal operators that we consider include non-Gaussian asset price models widely used in mathematical finance, such as Variance Gamma Processes and Regular L\'evy Processes of Exponential type. In this context, the viscosity solutions that we analyze coincide with the prices of perpetual and finite expiry American options.

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  • Donatella Danielli & Arshak Petrosyan & Camelia A. Pop, 2017. "Obstacle problems for nonlocal operators," Papers 1709.10384, arXiv.org, revised Oct 2017.
    • Handle: RePEc:arx:papers:1709.10384
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    References listed on IDEAS

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    1. Ernesto Mordecki, 2002. "Optimal stopping and perpetual options for Lévy processes," Finance and Stochastics, Springer, vol. 6(4), pages 473-493.
    2. Peter Carr & Helyette Geman, 2002. "The Fine Structure of Asset Returns: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 75(2), pages 305-332, April.
    3. Madan, Dilip B & Seneta, Eugene, 1990. "The Variance Gamma (V.G.) Model for Share Market Returns," The Journal of Business, University of Chicago Press, vol. 63(4), pages 511-524, October.
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