Finite difference methods for option pricing

Finite difference methods are a way of pricing options (options are like contracts between two people). This method uses a mathematical formula to figure out how much an option should cost based on how much the stock price might move in the future. It looks at how much the stock might go up or down, and then uses that knowledge to calculate an option's value. To do this, it breaks up the price movement of the stock into small pieces, called a finite difference. By looking at all of these small pieces, the finite difference method can come up with a price that seems reasonable.