In the previous chapter, we reviewed some of the key mathematical models used to describe the behavior of the underlying assets of financial derivatives. We saw, in particular, how these models are used to describe the future behavior of these assets based on the information we have today. These models are generally expressed in terms of SDEs and Partial Differential Equations (PDEs).
In this chapter, we are going to describe the three main numerical methods used in the financial markets today in the context of financial derivatives. They are a way to use actual numerical values to the abstract mathematical formulas we saw in the previous chapter. These numerical methods are as follows: