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Derivative Problem......... Reply it

Sangita gupta (final Student) (312 Points)

28 April 2011

When solving derivative question, can we use e^x = (1+X)

It gives the approximate value. is it acceptable in exam.

Please reply

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7 Replies

Bharath (C.A,C.S) (3983 Points)
Replied 28 April 2011

HEY THERE IS A MUCH SIMPLER METHOD TO SOLVE THAT POSTED BY CA NAGENDRA SIR,....

HERE IS THE METHOD,...

Example-1: Suppose you have to calculate value of e ^0.556

For this you have to remember value of “e”. Value of e = 2.71828

It means we have to calculate the value of 2.71828 ^0.556

Follow following step on calculator:

2.71828 √ √ √ √ √ √ √ √ √ √ √ √ (i.e press 12 times: square root)

- 1 (i.e. press "minus", then "one")

X 0.556 (i.e. press "Multiply", then "0.556")

+ 1 (i.e. press "Plus", then "1")

X = X = X = X = X = X = X = X = X = X = X = X = (i.e. press 12 times: "multiply" and "=")

Now you have 1.74373 on your calculator.

--it means e ^0.556 = 1.7437

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Sangita gupta (final Student) (312 Points)
Replied 28 April 2011

Thanks Bharat for you reply. but i confuse that when to use e^x and when to use (1+X).

in some question----- for converting pv of exercise price use 1+x and some time use e^x

I am confused

Bharath (C.A,C.S) (3983 Points)
Replied 28 April 2011

HEY DONT GET CONFUSED AT ALL,...

IN ALL THE DERIVATES PROBLEMS WE HAVE TO FIND VALUE OF E^X ,..

SO JUST FOLLLOW THE PROCEDURE I TOLD U,..

ITS ABSOLUTELY CORRECT,...

DONT BE IN TWO MINDS,...

CA Nagendra (CA) (1788 Points)
Replied 28 April 2011

Originally posted by : Sangita gupta
	Thanks Bharat for you reply. but i confuse that when to use ex and when to use (1+X). in some question----- for converting pv of exercise price use 1+x and some time use ex I am confused

When question specify that given interest rate is compounded continuously then use e^-rt . If nothing mentioned then assume interest rate is compounded periodically and use (1+Preiodic interest rate) i.e. (1+x)

However in black-schole model theres is assumption that the interest rate is compounded continuously whether question specify or not hence always use e^-rtfor converting to PV of exercise price.

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Sangita gupta (final Student) (312 Points)
Replied 28 April 2011

@ Nagendra Sir,

Thanks a lot for ur reply.

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Sangita gupta (final Student) (312 Points)
Replied 28 April 2011

@ Nagendra sir,

I have some doubt on Black schole model for calculation of N(d1) and N(d2). I am confused to use Normal distribution table and adjustment there to.

Please clarify it. if you have any notes regarding this please please provide it to me.

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CA Nagendra (CA) (1788 Points)
Replied 29 April 2011

Originally posted by : Sangita gupta
	@ Nagendra sir, I have some doubt on Black schole model for calculation of N(d1) and N(d2). I am confused to use Normal distribution table and adjustment there to. Please clarify it. if you have any notes regarding this please please provide it to me.

It is not so easy to explain it here. I am taking 1 full class to explain only the concept of normal distribution table, N(d1), N(d2), Ln, and e^x.

Some other person is also asking for the same. I am trying to upload the notes regarding this. As it is not computerise i will upload scan copy of it. Wait for few days.

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