A Study on the Impact of Nonlinear Source Term in Black-Scholes Option Pricing Model

Abstract

In this work, we study the effect of nonlinear source term in Black-Scholes model by finding the solution of it. We use the mathematical concepts of existence and uniqueness to arrive the conclusion. The transformation of the nonlinear equation into heat equation leads to the existence of solution through fixed-point theorems, semigroup theory, and certain regularity conditions imposed on variables.