easy · Quantitative Finance stochastic
The 'Feynman-Kac' formula provides a bridge between stochastic processes and partial differential equations. It states that the solution to a specific PDE can be represented as:
- The path of least resistance a trader follows when executing a very large order.
- The stationary distribution reached by a continuous-time Markov chain.
- The derivative of the log-likelihood function used in Maximum Likelihood Estimation.
- The conditional expectation of a payoff function under a certain probability measure.
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