Interview Question: SDE

Sample Question #154 (mathematics – stochastics)

What’s the Fokker-Planck equation? How is it used in financial modeling?

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One Response to Interview Question: SDE

  1. Brett says:

    ANSWER
     
    The Fokker-Planck equation is a type of stochastic differential equation, i.e., a differential equation with stochastic (as opposed to deterministic) terms. Fokker-Planck is useful for describing probability distribution evolution and is employed in finance to study derivatives pricing.
     

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