Diffusion Equation and Monte Carlo

137 Pages Posted: 29 Apr 2011

Date Written: February 3, 2007

Abstract

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

Österling, Anders Eskil, Diffusion Equation and Monte Carlo (February 3, 2007). Available at SSRN: https://ssrn.com/abstract=1824462 or http://dx.doi.org/10.2139/ssrn.1824462

Anders Eskil Österling (Contact Author)

Stockholm University, Students ( email )

Stockholm
Sweden

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