Explain finite-difference method in finance
Explain finite-difference method in finance.
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Financial problems starting from stochastic differential equations as models for quantities developing randomly, like equity prices or interest rates, are using the language of calculus. We refer, in calculus to gradients, slopes, rates of change and sensitivities. Such mathematical ‘derivatives’ explain how fast a dependent variable, changes as one of the independent variables, as an option value, as an equity price and changes. These sensitivities are technically explained as the ratio of the infinitesimal change in the dependent variable to the infinitesimal change into the independent.
And we need an infinite number of such infinitesimals to explain an entire curve. Nonetheless, when trying to compute these slopes numerically, on a computer, for illustration, we cannot deal along with infinites and infinitesimals, and have to resort to estimates.
Explain different useful tools in Quantitative Finance.
Give an example of closed form solution?
Whereas you were visiting London, you purchased a Jaguar for £35,000, payable in three months. You have sufficient cash at your bank in New York City that pays 0.35% interest per month, compounding monthly, to pay for the car. At present, the spot exchan
Explain exotic or over-the-counter (OTC) contracts.
What is Speed in option value?
Why cash flows and accounting profits are not considered the same thing.
Explain the term implied volatility in Black–Scholes option-pricing equation.
Explain various explanations regarding risk-neutral pricing.
What are random factors for risk-neutral drifts?
What is Vomma or Volga in option value?
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