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 Topic Title: How in the world do I derive the Fokker-Planck / Forward Kolmogorov equations? Created On Fri Feb 01, 08 02:58 AM Topic View: Branch View Threaded (All Messages) Threaded (Single Messages) Linear

StudentsT
Junior Member

Posts: 9
Joined: Dec 2003

Fri Feb 01, 08 02:58 AM

How in the world do I derive the Fokker-Planck / Forward Kolmogorov equations? Is there a reference out there that actually does the derivation? Wilmott's otherwise outstanding text leads off with a trinomial tree, but does not proceed to prove the result. Help!

mjy
Member

Posts: 38
Joined: Aug 2007

Fri Feb 01, 08 07:35 AM

the book by tomas björk has a chapter on partial differential equation,s in which there is an intuitive derivation of the fokker planck equation . i hope that can help you.

Member

Posts: 21
Joined: Aug 2007

Thu Feb 21, 08 05:17 AM

Send me your email id and I can forward you the derivation.

Cheers
Arun

jfuqua
Senior Member

Posts: 1255
Joined: Jul 2002

Tue Oct 25, 11 03:39 PM

The solution for the forward Black-Scholes equation using finite differences is shown many books/papers---i.e. from the equation through to which kinds of differences are done for the dv/ds, dv/dt, etc. but I've never seen that detail for the Fokker-Planck.
Does such an illustration exist ?

Alan
Senior Member

Posts: 8418
Joined: Dec 2001

Tue Oct 25, 11 04:19 PM

Quote

Originally posted by: jfuqua
The solution for the forward Black-Scholes equation using finite differences is shown many books/papers---i.e. from the equation through to which kinds of differences are done for the dv/ds, dv/dt, etc. but I've never seen that detail for the Fokker-Planck.
Does such an illustration exist ?

It is derievd by differentiating the Chapman-Kolmogorov relation under suitable assumptions about the underlying stochastic
process. I think you can find this in Doob's Stochastic Processes book. The derivation uses a Taylor expansion, so somewhat
analogous to what you are asking for.

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Edited: Tue Oct 25, 11 at 04:43 PM by Alan