Dictionary > Finance > I > Implicit Finite Difference Method

# Finance Dictionary - I Terms

# Implicit Finite Difference Method

A method for valuing a derivative by solving the underlying differential equation. The value of the derivative at time t þ dt is related to three values at time t. For pricing a stock option, these three values are M ¼ number of stock price; N ¼ number of time maturity; and DS ¼ stock of price intervals. For example, values 10, 5 and 3 are chosen for M, N, and DS. Thus the option price is evaluated at $3 stock price intervals between $0 and $30 and at half-month time intervals through the life of the option.