Abstract
The financial industry is one of the most influential driving forces behind the research into stochastic processes. This is due to the fact that it relies on stochastic models for valuation and risk management. But perhaps more surprisingly, it was also one of the main drivers that led to their initial discovery.
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Notes
- 1.
Other very important factors are, for example, the creditworthiness of the debtor or the rate of inflation.
- 2.
By put–call parity (6.22), the implied volatility for puts and calls in an arbitrage-free market has to be identical for all pairs T, K.
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Capasso, V., Bakstein, D. (2015). Applications to Finance and Insurance. In: An Introduction to Continuous-Time Stochastic Processes. Modeling and Simulation in Science, Engineering and Technology. Birkhäuser, New York, NY. https://doi.org/10.1007/978-1-4939-2757-9_6
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