A Trivial Second Order PDE?

28 Views Asked by At

Consider

$$\frac{\partial V}{\partial S} = \frac{1}{S}\frac{\partial V}{\partial x}$$

To find the second order derivative

$$\frac{\partial^2 V}{\partial S^2}$$

we apply the chain rule such that

$$\frac{\partial^2 V}{\partial S^2} \equiv \frac{\partial}{\partial S}\Big[ \frac{1}{S}\frac{\partial V}{\partial x}\Big] = -\frac{1}{S^2}\frac{\partial V}{\partial x} +\frac{1}{S}\frac{\partial}{\partial S}\Big[\frac{\partial V}{\partial x}\Big] $$

I am struggling to solve the seemingly trivial part

$$\frac{1}{S}\frac{\partial}{\partial S}\Big[\frac{\partial V}{\partial x}\Big] $$

The solution should read...

$$\frac{\partial^2 V}{\partial S^2} = -\frac{1}{S^2}\frac{\partial V}{\partial x} + \frac{1}{S^2}\frac{\partial^2 V}{\partial x^2}$$

1

There are 1 best solutions below

0
On BEST ANSWER

\begin{align} \frac{\partial^2 V}{\partial S^2} &= \frac{\partial}{\partial S}\left(\frac{\partial V}{\partial S}\right) \\ &= \frac{\partial}{\partial S}\left(\frac{1}{S}\frac{\partial V}{\partial x}\right) \\ &= -\frac{1}{S^2}\frac{\partial V}{\partial x} + \frac{1}{S} \color{blue}{\frac{\partial^2 V}{\partial S \partial x}} \\ &= -\frac{1}{S^2}\frac{\partial V}{\partial x} + \frac{1}{S} \color{blue}{\frac{\partial}{\partial x}\left(\frac{\partial V}{\partial S} \right)} \\ &= -\frac{1}{S^2}\frac{\partial V}{\partial x} + \frac{1}{S} \color{blue}{\frac{\partial}{\partial x}\left(\frac{1}{S}\frac{\partial V}{\partial x}\right)} \\ &= -\frac{1}{S^2}\frac{\partial V}{\partial x} + \frac{1}{S^2}\frac{\partial^2 V}{\partial x^2} \end{align}