Root's barrier and viscosity solutions of obstacle problems

Sandwich Seminar

Following the works of Dupire (2005), Carr & Lee (2010) and Cox & Wang (2011) on connections between Root's solution of the Skorokhod embedding problem, free boundary PDEs and model-independent bounds on options on variance we propose an approach with viscosity solutions.

Besides generalizations of above results, it allows for intuitive proofs, gives a link with reflected FBSDEs as introduced by El-Karoui & al. (1997) and allows for easy convergence proofs of numerical schemes via the Barles & Souganidis (1991) method. For general financial applications in which the investor takes into account all intermediary information to obtain bounds for the price of the variance option we extend and discuss the concept of Root regular barriers.


Gonçalo dos Reis (TU, Berlin)

Tuesday, December 4, 2012 - 12:30
to 13:30