The tool of Approximations methods in Quantitative Finance

Question

Explain the tool of Approximations methods in Quantitative Finance.

Answer 1

Approximations: In modelling we intend to come up with a solution representing something useful and meaningful, as an option price. But for the model is really simple, we may not be capable to solve it simply. It is where approximations come in. A complex model may have approximate solutions. These approximate solutions might be good adequate for our purposes.