medium · Quantitative Finance
What is the primary reason the Feynman-Kac formula is considered a 'bridge' in quantitative finance?
- It allows for the conversion of American options into European options.
- It proves that pricing can be done either by solving a PDE or by running a Monte Carlo simulation.
- It links the prices of stocks to the prices of bonds through a single equation.
- It connects the implied volatility smile to the realized volatility of the underlying.
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