Option pricing formulas and nonlinear filtering: a Feynman path integral perspective

Bhashyam Balaji

doi:10.1117/12.2017901

23 May 2013 Option pricing formulas and nonlinear filtering: a Feynman path integral perspective

Bhashyam Balaji

Proceedings Volume 8745, Signal Processing, Sensor Fusion, and Target Recognition XXII; 874520 (2013) https://doi.org/10.1117/12.2017901
Event: SPIE Defense, Security, and Sensing, 2013, Baltimore, Maryland, United States

Abstract

Many areas of engineering and applied science require the solution of certain parabolic partial differential equa tions, such as the Fokker-Planck and Kolmogorov equations. The fundamental solution, or the Green's function, for such PDEs can be written in terms of the Feynman path integral (FPI). The partial differential equation arising in the valuing of options is the Kolmogorov backward equation that is referred to as the Black-Scholes equation. The utility of this is demonstrated and numerical examples that illustrate the high accuracy of option price calculation even when using a fairly coarse grid.

Citation Download Citation

Bhashyam Balaji "Option pricing formulas and nonlinear filtering: a Feynman path integral perspective", Proc. SPIE 8745, Signal Processing, Sensor Fusion, and Target Recognition XXII, 874520 (23 May 2013); https://doi.org/10.1117/12.2017901

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