Physical Sciences and Mathematics Commons^™

Comparative Error Analysis Of The Black-Scholes Equation, Chuan Chen

Honors Theses

Finance is a rapidly growing area in our banking world today. With this ever-increasing development come more complex derivative products than simple buy-and-sell trades. Financial derivatives such as futures and options have been developed stemming from the traditional stock, bond, currency, and commodity markets. Consequently, the need for more sophisticated mathematical modeling is also rising. The Black-Scholes equation is a partial differential equation that determines the price of a financial option under the Black-Scholes model. The idea behind the equation is that there is a perfect and risk-free way for one to hedge the options by buying and selling the …