Diffusion Equation and Monte Carlo
137 Pages Posted: 29 Apr 2011
Date Written: February 3, 2007
Introducing the Brownian motion in the way of Einstein and Wiener we find the connection between a Wiener Process and the Heat Diffusion PDE.We solve the PDE analytically for some boundary conditions and then use the connection to the Wiener Process to solve more complex BVP’s using Monte Carlo simulations in Matlab. We connect the solutions to Black-Scholes.
Keywords: Diffusion Equation, boundary value problems, BVP, Monte Carlo, Black-Scholes
JEL Classification: G10, G13, C60, C61, P43
Suggested Citation: Suggested Citation