Algebraic aspects of evolution partial differential equation arising in the study of constant elasticity of variance model from financial mathematics

Abstract

The optimal investment-consumption problem under the constant elasticity of variance (CEV) model is investigated from the perspective of Lie group analysis. The Lie symmetry group of the evolution partial differential equation describing the CEV model is derived. The Lie point symmetries are then used to obtain an exact solution of the governing model satisfying a standard terminal condition. Finally, we construct conservation laws of the underlying equation using the general theorem on conservation laws.

Keywords

• cev model
• terminal condition
• lie point symmetries
• group-invariant solution
• conservation laws
• 02.20.sv
• 02.20.tw
• 02.30.jr
• 02.60.lj