Transformation of Black Scholes PDE to Heat Equation

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Explains the transformation of Black Scholes' PDE to the heat equation/diffusion equation using memorable transformations based on financial justification

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A friend recommended me this video and... OMG, this is the best!!

noelia

THANK YOU so so much, this literally saved my math essay. I read many research papers, college handouts, website etc and none of them explained it as clearly as you did.

edenhines

Thank you for making these videos!! You are making Mathematical Finance comprehensible.

can

Beautiful! Really liked this video, would love to see a bit about feynman kac though. I have wasted countless hours the last week trying to understand the stochastic volatility jump diffusion model which I have read is an awesome alternative to geometric brownian motion, but the notation has just confused the hell out of me. Any chance of a video on stochastic volatility jump diffusion in the future?

JaGWiREE

Thank you for making the step by step explanation. This is super helpful ! On 3:59, "Ignore the stochastic term because the PDE will take care of the weights", could anyone help to explain in details about what PDE and what weights? Any why it could be removed? Thank you in advance !

huachengli

Nice work!! Yo have helped me a lot with this derivation!! I will mention you in the referencens of my degree final project :)

nachorom

This video is nice and really enjoyed watching it. However, how do we get the initial and boundary condition after transforming the PDE into the heat equation. What happens if x is zero or approaches infinity?

titusndenyarko

Great Videos! Question: where does the (e^rt) comes when you represent the value of the option in its forward value? Thank you very much!

ricardojimenez

We use that the solution of S_t here depends on r - which I take to be the risk-free rate. Unless we are in the context of the risk-neutral measure, I don't understand why it should not be \mu instead. Could you elaborate on that?

alemorita

Thank you for making these videos!!
if it is possible share the ppt text of these lessons.

ferozamiri

Useless as without change of variables on boundaries.

lucynowacki

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