Which of the following is necessary in order to solve the fundamental PDE to obtain the price of a derivative security?
A) The utility function of the representative investor trading in that derivative security.
B) The growth rate of the price of the derivative security.
C) The boundary conditions for the payoffs of the security.
D) A benchmark price of a related derivative security that is correlated with the security being priced.

Question

Quizplus · Accepted Answer

The boundary conditions for the payoffs of the security are necessary in order to solve the fundamental PDE to obtain the price of a derivative security. The other options (A, B, and D) may be relevant factors in determining the price of a derivative security, but they do not directly pertain to the fundamental PDE itself.

Which of the Following Is Necessary in Order to Solve