stochastic

Examples of stochastic in the following topics:

• Time to Maturity

  • Finally, it is important to recognize that future interest rates are uncertain, and that the discount rate is not adequately represented by a single fixed number (this would be the case if an option was written on the bond in question) stochastic calculus may be employed.

• Defining Options and Their Valuation

  • The value of an option can be estimated using a variety of quantitative techniques based on the concept of risk neutral pricing and using stochastic calculus.
  • More advanced models can require additional factors, such as an estimate of how volatility changes over time and for various underlying price levels, or the dynamics of stochastic interest rates.