Valuation of Financial Derivatives with Time-Dependent Parameters: Lie-Algebraic Approach
Quantitative Finance, Vol. 1, No. 1, pp. 73-78, 2001
6 Pages Posted: 7 May 2007
Based upon the Wei-Norman theorem, this paper presents a Lie-algebraic technique for the pricing of financial derivatives with time-dependent parameters. By 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 method for the valuation of financial derivatives.
Keywords: Lie algebra, option pricing, corporate bond pricing
JEL Classification: F31, G13
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