Perhaps the most convenient fiction in financial modelling is the assumption that markets trade in continuous time, with asset price processes solving stochastic differential equations (SDEs). The assumption is as old as the subject itself, having begun with Louis Bachelier formulating his Brownian motion model in 1900, five years before Einstein discovered it in physics.
The trouble comes when an attempt is made to capture this in the inherently discrete world of the computer. Whether it is Mon
The week on Risk.net, March 10-16 2018Receive this by email