stochastic
(adjective)
Random, randomly determined, relating to stochastics.
Examples of stochastic in the following topics:
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Time to Maturity
- Finally, it is important to recognize that future interest rates are uncertain, and that the discount rate is not adequately represented by a single fixed number (this would be the case if an option was written on the bond in question) stochastic calculus may be employed.
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Defining Options and Their Valuation
- The value of an option can be estimated using a variety of quantitative techniques based on the concept of risk neutral pricing and using stochastic calculus.
- More advanced models can require additional factors, such as an estimate of how volatility changes over time and for various underlying price levels, or the dynamics of stochastic interest rates.