hard · Quantitative Finance

Under the Feynman-Kac theorem, how is the solution to the Black-Scholes PDE related to stochastic processes?

1. It equates the physical drift μ with the risk-neutral drift r.
2. The PDE solution at time t can be expressed as the conditional expectation of the terminal payoff under the risk-neutral measure.
3. The theorem proves that the stock price must follow a normal distribution.
4. It shows that the Greeks of an option can be found without differentiating the pricing formula.

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