PPolySim OS

Quantitative Finance

Black–Scholes Equation

The PDE for pricing options.

∂V/∂t + ½σ²S²∂²V/∂S² + rS∂V/∂S − rV = 0

What it means

The Black–Scholes equation prices derivatives under geometric Brownian motion, a parabolic PDE solved across asset price and time.

Variables

Voption value
Sasset price
σvolatility
rrisk-free rate

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