Exact solutions of transaction cost nonlinear models for illiquid markets

The aim of this study is to show that the Reduced Differential Transform Algorithm (RDTA) can be applied to highly nonlinear evolution equations appearing in quantitative finance. In particular, we compute exact solutions of nonlinear PDEs arising by relaxing the transaction-cost assumption in the illiquid Black-Scholes market. Moreover, we also aim to study the impact of the absence and presence of price slippage impact in the illiquid Black-Scholes model with transaction-cost.

Automated summary

The study aims to demonstrate the applicability of the Reduced Differential Transform Algorithm (RDTA) to highly nonlinear evolution equations in quantitative finance. Exact solutions of nonlinear PDEs in the illiquid Black-Scholes market are computed by relaxing the transaction-cost assumption. Furthermore, the impact of price slippage in the illiquid Black-Scholes model with transaction-cost is also studied.