TABLE OF CONTENTS In previous chapters in this book, path-integral techniques were in fact used repeatedly for valuation. In this part of the book, we deal directly with the formalism of path integrals as applied to finance. Those who already know path integrals and who want to jump-start into finance might start with these chapters. The finance discussion is self-contained. For those who are unfamiliar with path integrals, the presentation will have appropriate background material.
At the same time, because path integrals are in fact Green functions, the discussion will be relevant to the Green function approach to options.
Path integrals were developed by Feynman as a technique used in his Nobel-prize winning work related to relativistic quantum mechanics. Path integrals constitute a powerful and elegant framework for treating problems containing random or stochastic variables. This framework is very general. There is a long history of path integrals applied to practical problems in physics.
Path integrals applied to finance provide a powerful, understandable approach. Path integrals are useful for options. This is because finance theory involves diffusion equations, based on...
