A Nonlinear Option Pricing Model Through the Adomian Decomposition Method

Abstract

Recently the liquidity of financial markets and transaction costs have become a topic of great interest in financial risk management. In this paper, a hypotetical nonlinear model of option pricing that occurs when the effects of market illiquidity and transaction costs are taken into account and an approximate solution is obtained through the Adomian decomposition method. Finally, two numerical examples are investigated to demonstrate the efficiency of our approach.