<t>Start with BS PDE and work backwards:Find the one unique SDE that F-K connects with BS PDE. It will be the one like your original one for X(t), but with drift term replaced by risk free rate.Now, the problem with that SDE is that the stochastic part (dW(t) or something) is NOT a Brownian Motion u...

<t>Caperover,Yes, F-K does give the solution of a pde expressed as an expectation. What I'm saying is this: what the PDE you are using F-K to solve? Before you choose to apply F-K to solve the PDE, make sure it's actually a PDE you care about.So here is the program.1. derive the Black-Scholes PDE us...

<t>Caperover, I think I see what's tripping you up. You wrote:QuoteAccording to Feynman-Kac theorem, the solution to the partial differential equation gives us Be careful: *which* pde are you looking at? Write it down carefully, and check the conditions of the Feynman-Kac theorem. If you write the p...

I'm actually not that surprised to hear that, considering the (political and other) costs of switching.

<t>In the academic finance literature, the study of risk measures has been a hot topic ever since the seminal paper of Artzner, et. al., in 1997. The idea of a coherent risk measure seems to have been introduced as an alternative to Value at Risk that is superior in a number of ways. Specifically, t...

Some universities (e.g. the one I attend) have their entire financial mathematics program within the Operations Research dept.

<t>This precise issue was addressed in a 1990 article by Robert Jarrow and Peter Carr. There is a reference here. The one sentence answer is that the loss one experiences by implementing that strategy is related to the local time of geometric Brownian motion, and that loss is exactly equal to the Bl...

What is the "Malliavin Calculus?"

Custard, have you observed much difference in the corporate culture / quality of life between h funds and i banks?

<t>E*Trade bank, possibly among others, has introduced what they call a "portable mortgage." The idea is that you can lock in a (slightly higher) mortgage rate for your current home purchase AND YOUR NEXT HOME PURCHASE. Unfortunately, this is for new homes only, not refinances.Question: what is the ...

Math: SIAM, INFORMS

QuoteOriginally posted by: AaronThere are a lot of interesting ideas here, it's too bad only idiots are commenting about it in public.There is some intelligent commentary in the Op-Ed page of today's (July 31) New York Times.

<t>Well, noone touched my question on the QFFAQ forum, so I'll try again on the student forum - since I am, after all, a student...This question is about the Black-Scholes analysis and ways in which it can be extended.In what sense is the delta-hedged portfolio instantaneously risk-free, hence growi...

<t>Question regarding the notion of arbitrage-free pricing, specifically in the derivation of the Black-Scholes differential equation: In what sense is the delta-hedged portfolio instantaneously risk-free, hence growing at the rate $r dt$, when in fact there exist higher order risks (gamma), other "...

Cornell's 1-year MBA is for people who already have an "advanced degree in a scientific discipline."