Dismiss Notice
Join Physics Forums Today!
The friendliest, high quality science and math community on the planet! Everyone who loves science is here!

Using Partial Derivatives to check B-S Equation holds and find constants

  1. Oct 26, 2011 #1
    The question I'm trying to solve is part (ii) of the attached file

    I've used partial derivatives to input back into the Black Scholes equations and after factorising it, I've got it down to:

    (a + 2bt + αt +r) * (S².c.e^(at+bt²) = 0

    I'm now stuck on what to do next, as there would need to be 2 equations in order to solve simultaneously which isn't the case above.

    Help would appreciated

    Attached Files:

  2. jcsd
  3. Oct 26, 2011 #2
    I think I got the solution to the first part by letting (a + 2bt + αt +r) = 0

    Therefore a = -r and b = -α/2

    However I'm not sure how to complete the last part, I'm sure it's quite straight forward, but I just can't see what to do.

Share this great discussion with others via Reddit, Google+, Twitter, or Facebook