What is backward equation
What is backward equation?
Expert
The backward equation termed as also the backward Kolmogorov equation it is
∂p/∂t + ½ B(y,t)2∂2p/∂y2 + A(y,t) ∂p/∂y = 0
This should be solved backwards in t with given last data.
For illustration, if we wish to compute the expected value of a few functions F(S) at time T we should solve this equation for the function p(S, t) along with
p(S, T) = F(S).
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