Finite Difference Methods

Finite Difference Methods

Black Scholes Model

Black Scholes model is considered to be one of the most important models that have been developed in the modern financial theory. This model determines the variation in price of financial instruments over a period of time. This model is used to calculate the price of European call option. The main assumption of this model is that the prices of highly traded assets follow Brownian motion and has constant volatility and drift. This model when applied to stock option incorporates certain factors such as time value of money, constant price variation, option's time of expiry ...