The Feynman–Kac formula named after Richard Feynman and Mark Kac, establishes a link between parabolic partial differential equations (PDEs) and stochastic processes. It offers a method of solving certain PDEs by simulating random paths of a stochastic process. Conversely, an important class of expectations of random processes can be computed by deterministic methods. 

This document explores the formula and looks at applications of Feynman-Kac to option pricing.

This is part 25 of a 45-document course on Modeling Financial Markets.