stochastic calculus in finance

Vishnu Nair (Chartered Accountant) (935 Points)

11 January 2010  

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The financial markets use stochastic models to represent the seemingly random behaviour of assets such as stockscommodities and interest rates. These models are then used byquantitative analysts to value options on stock prices, bond prices, and on interest rates, see Markov models. Moreover, it is at the heart of the insurance industry.

Not to be confused with stochastic oscillators in technical analysis.