Valuation of Financial Derivatives with Time-Dependent Parameters : Lie-Algebraic Approach

Based upon the Wei-Norman theorem, this paper presents a Lie-algebraic technique for the pricing of financial derivatives with time-dependent parameters. By exploiting the dynamical symmetry of the pricing partialdifferential equations of the financial derivatives, the new method enables us to derive analytical closed-form pricing formulae very straightforwardly. We believe that this new approach will provide an efficient method for the valuation of financial derivatives