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    Deriving the Black - Schole Equation

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    The BSM equation for a derivative F on a stock paying no dividends is:

    -See attachment

    If you were to transform this PDE with the substitution S = Ke^x, where x is a variable and K a constant, what would be the resulting equation?

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    Solution Summary

    In this solution, the black and schole equation is derived from the heat equation.