Kolmogorov and Feynman-Kac Equations
Document ID: 2010-1989
Published on: 1st October 2010
Author: Graeme Lawson
In this Technical Note we concentrate our efforts on deriving the Feynman-Kac formula, which is a Partial Differential Equation (PDE) whose solution is the expected value of function of the future value of a random variable, given the current value of the random variable. In mathematical finance this function is commonly interpreted as a payoff function of a derivative contract, for example European put or call. Thus solving this PDE we can find the price of a derivative contract
