Change of variables (PDE)
||It has been suggested that this article be merged into Change of variables. (Discuss) Proposed since May 2012.|
The article discusses change of variable for PDEs below in two ways:
- by example;
- by giving the theory of the method.
Explanation by example
For example the following simplified form of the Black–Scholes PDE
is reducible to the heat equation
by the change of variables:
in these steps:
- Replace by and apply the chain rule to get
- Replace and by and to get
- Replace and by and and divide both sides by to get
- Replace by and divide through by to yield the heat equation.
"There is nothing particularly difficult about changing variables and transforming one equation to another, but there is an element of tedium and complexity that slows us down. There is no universal remedy for this molasses effect, but the calculations do seem to go more quickly if one follows a well-defined plan. If we know that satisfies an equation (like the Black–Scholes equation) we are guaranteed that we can make good use of the equation in the derivation of the equation for a new function defined in terms of the old if we write the old V as a function of the new v and write the new and x as functions of the old t and S. This order of things puts everything in the direct line of fire of the chain rule; the partial derivatives , and are easy to compute and at the end, the original equation stands ready for immediate use."
Technique in general
Suppose that we have a function and a change of variables such that there exist functions such that
and functions such that
and furthermore such that
In other words, it is helpful for there to be a bijection between the old set of variables and the new one, or else one has to
- Restrict the domain of applicability of the correspondence to a subject of the real plane which is sufficient for a solution of the practical problem at hand (where again it needs to be a bijection), and
- Enumerate the (zero or more finite list) of exceptions (poles) where the otherwise-bijection fails (and say why these exceptions don't restrict the applicability of the solution of the reduced equation to the original equation)
If a bijection does not exist then the solution to the reduced-form equation will not in general be a solution of the original equation.
We are discussing change of variable for PDEs. A PDE can be expressed as a differential operator applied to a function. Suppose is a differential operator such that
Then it is also the case that
and we operate as follows to go from to
- Apply the chain rule to and expand out giving equation .
- Substitute for and for in and expand out giving equation .
- Replace occurrences of by and by to yield , which will be free of and .
Often, theory can establish the existence of a change of variables, although the formula itself cannot be explicitly stated. For an integrable Hamiltonian system of dimension , with and , there exist integrals . There exists a change of variables from the coordinates to a set of variables , in which the equations of motion become , , where the functions are unknown, but depend only on . The variables are the action coordinates, the variables are the angle coordinates. The motion of the system can thus be visualized as rotation on torii. As a particular example, consider the simple harmonic oscillator, with and , with Hamiltonian . This system can be rewritten as , , where and are the canonical polar coordinates: and . See V. I. Arnold, `Mathematical Methods of Classical Mechanics', for more details.
- Ömür Ugur, An Introduction to Computational Finance, Series in Quantitative Finance, v. 1, Imperial College Press, 298 pp., 2009
- J. Michael Steele, Stochastic Calculus and Financial Applications, Springer, New York, 2001
- V. I. Arnold, Mathematical Methods of Classical Mechanics, Graduate Texts in Mathematics, v. 60, Springer-Verlag, New York, 1989