On a degenerate parabolic equation arising in pricing of Asian options

摘要

We study a certain one-dimensional, degenerate parabolic partial differential equation with a boundary condition which arises in pricing of Asian options. Due to degeneracy of the partial differential operator and the non-smooth boundary condition, regularity of the generalized Solution of such a problem remained unclear. We prove that the generalized Solution of the problem is indeed a classical solution. (C) 2008 Elsevier Inc. All rights reserved.