10) Solving the heat conduction and Black-Scholes equations Flashcards
(8 cards)
1
Q
What are the key properties of the heat equation and why is it useful in Black-Scholes analysis
A
2
Q
What is the fundamental solution to the heat equation and how is it related to probability
A
3
Q
What is the Dirac delta function and what is its key integral property
A
4
Q
What is the Heaviside function and how is it related to the Dirac delta function
A
5
Q
What substituions are used to transform the Black-Scholes equation
A
6
Q
What further substitutions are used to simplify the transformed Black-Scholes PDE, and how does this lead to the heat equation
A
7
Q
What is the final transformed solution linking Black-Scholes to the heat equation
A
8
Q
How are the initial conditions for call and put options transformed after converting the Black-Scholes equation to the heat equation
A
