On a price formation free boundary model by Lasry & Lions: The Neumann problem

We discuss local and global existence and uniqueness for the price formation free boundary model with homogeneous Neumann boundary conditions introduced by Lasry & Lions in 2007. The results are based on a transformation of the problem to the heat equation with nonstandard boundary conditions. The free boundary becomes the zero level set of the solution of the heat equation. The transformation allows us to construct an explicit solution and discuss the behavior of the free boundary. Global existence can be verified under certain conditions on the free boundary and examples of non-existence are given.