medium · Quantitative Finance
In the Black-Scholes PDE, (partial V)/(partial t) + rS(partial V)/(partial S) + (1)/(2)σ^2S^2fracpartial^2 Vpartial S^2 - rV = 0, what does the term -rV physically represent?
- The variance of the underlying asset returns.
- The opportunity cost of the capital tied up in the option premium.
- The expected growth of the stock price under the real-world measure.
- The decay of the option value due to time passage alone (Theta).
Sign up free to see the explanation and track your rank →
More Quantitative Finance practice
- If the correlation between two assets is ρ = 0.6, what is the R^2 of a linear regression o
- For a standard Brownian motion W_t, what is the expected value of W_t^2?
- If the risk-neutral probability of an up move is p = 0.6, what is the expected stock price
- When calibrating a Heston stochastic volatility model, a pra… — Does this calibration sati
- Based on put-call parity, what is the arbitrage-free relationship?
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- Assuming 252 trading days in a year, what is the annualized historical volatility?
- Under Girsanov's Theorem, what does a change of probability measure primarily alter in a s