Pricing Financial Derivatives Using Partial Differential Equations: A Step-by-Step Solution of the Black-Scholes Equation

By on April 27th, 2015

In this post I will try to give a quick overview of the pricing of options using PDEs. Using partial differential equation was the method first employed by Fischer Black and Myron Scholes in order to estimate the value of a European option and it has had a strong position as an elementary strategy for […]

No Comments

Read more

How to Solve Stochastic Differential Equations: the Integrating Factor Technique

By on April 16th, 2015

In this blog post I will present a quite simple technique for finding the solution to an SDE. This method will unfortunately not solve any SDE you are likely to come across, and it is not able to solve systems of stochastic processes, but the solution to many common equations that have something in common […]

No Comments

Read more

Solving the Geometric Brownian Motion

By on April 7th, 2015

The most common Stochastic Differential Equation (SDE) in finance is the traditional Geometric Brownian Motion (GMB), used by Black, Scholes and Merton to find the closed-form solution to European Options. Solving the SDE might be a simple exercise for many, but I chose to include it and give it its own blog post since some […]

No Comments

Read more