Journal of Computational Finance

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A PDE method for computing moments

Thomas Little and Vijay Pant

ABSTRACT

This paper presents a partial differential equation method for computing the moments of a certain class of functionals in the Black-Scholes framework. It is shown that, for this set of functionals, a change of variables can be used to reduce the dimension problem. The moments can then be found by numerically solving one-dimensional partial differential equations. The method is demonstrated by obtaining numerical solutions for the moments of the continuous arithmetic average.

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