Explain numerical integration in numerical method
Explain numerical integration in numerical method.
Expert
Infrequently one can write down the solution of an option-pricing problem within form of a numerous integral. It is as you can interpret the option value like an expectation of a payoff, and also an expectation of payoff is mathematically only the integral of the product of which payoff function and a probability density function. It is only possible in particular cases. The option has to be European, the underlying stochastic differential equation should be explicitly integrable (therefore the lognormal random walk is ideal for that) and the payoff shouldn’t generally be path dependent. So when this is possible then pricing is simple... you have a formula. The only complexity comes in turning this formula in a number. And which is the subject of numerical integration or quadrature.
How do flotation costs affect the cost of raising the capital when a company issues new securities?
Explain in brief the non-diversifiable risk and ways to measure it?
What is Colour for option value?
When we can use Finite difference numerical method?
How can we estimate the payback period for a proposed capital budgeting project? What are the major problems of the payback method?
What are the Most Useful Performance Measures?
What will happen when a bank gives discount interest on a loan?
Why is actual volatility not easy to measure?
Elucidate the factors which affect the choice of a minimum cash balance amount.
Assume Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75 - 8.10 percent annually against six-month dollar LIBOR for dollars and 11.25 - 11.65 percent annually against six-month dollar LIBOR for British pound sterling. At what rates will Morgan Gua
18,76,764
1954752 Asked
3,689
Active Tutors
1422295
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!