Exploring the Real-Life

Applications of Taylor's
Theorem
In this presentation, we will delve into the practical uses of Taylor's theorem in
various fields such as optimization, physics, and finance. Discover how this
powerful mathematical tool helps us solve complex problems and gain valuable
insights.

PAHEL DHAROD
BTECH-IT
A016
Taylor's Theorem: An
Introduction
Taylor's theorem is a mathematical concept that allows us to approximate a
function based on its derivatives at a specific point. By expressing a function as
an infinite sum, we can gain a deeper understanding of its behavior and make
accurate predictions.
 Who discovered Taylor's series?

The concept of a Taylor series was

formulated by the Scottish mathematician James Gregory and
formally introduced by the English mathematician Brook Taylor
in 1715. If the Taylor series is centered at zero, then that series
is also called a Maclaurin series, named after the Scottish
mathematician Colin Maclaurin, who made extensive use of this
special case of Taylor series in the 18th century.
PREREQUISITES FOR A TAYLOR SERIES FORMULA:
FUNCTION TO BE USED IN
TAYLOR’S SERIES

One of the basic requirements for the

existence of a Taylor series at a point is
that the function has to be “smooth”,
that is, you have to be able to ,
differentiate the function infinitely
many times at that point (as is clear
from the power series expansion). For
example, f(x)=|x| has no Taylor series
about a=0 as it is not differentiable
there, but it has a Taylor series about
every other point.
Graphical Representation of Use of Taylor series for
Function:
expansion of a function:
 Few Facts About Taylor series:

1)

Examples: f(x)= sin(x) ; f(x)=e^x

2)
The accuracy of approximations increases with increase in
the number of terms considered
Taylor's Theorem in Different Fields
Optimization Physics Finance

In the realm of Physics phenomena can be Financial models heavily

optimization, Taylor's better understood through rely on Taylor's theorem to
theorem helps us analyze the lens of Taylor's estimate functions and
complex problems by theorem. By approximating predict trends. By using
providing a way to physical laws and solving Taylor series
approximate functions. It equations using Taylor approximations, we can
enables us to find the series expansions, we are analyze market data,
optimal solutions for able to gain insights into calculate risk metrics, and
various scenarios, whether the behavior of natural make informed investment
it's maximizing profit or phenomena. decisions.
minimizing cost.
Unlocking Optimization with Taylor's
Theorem
1 How does Taylor's 2 What is an
theorem help in
analyzing
optimization
problems?
Taylor's theorem
provides us with a
powerful tool to
approximate complex
functions that arise in
optimization problems.
By considering higher-
order derivatives, we
can obtain more
accurate results.
3 What are the
example benefits and
showcasing the advantages of
use of Taylor's using Taylor's
theorem in finding theorem in
optimal solutions? optimization?
Let's imagine Taylor's theorem allows
optimizing a us to simplify complex
manufacturing process. optimization problems
By applying Taylor's by using local
theorem, we can approximations. This
approximate the cost significantly reduces
function, determine computational
where the cost is complexity and
minimized, and facilitates faster
optimize production decision-making.
accordingly.
The Power of Taylor's Theorem in
Understanding Physics
What is an example
illustrating the application of
Taylor's theorem in physics?
Consider projectile motion. By using
Taylor series approximations, we can
calculate the trajectory of a projectile,
accounting for factors such as air
resistance and gravitational pull.
1 How does Taylor's theorem
contribute to understanding
physics phenomena?
2
Taylor's theorem enables us to
approximate physical laws and solve
equations representing intricate
phenomena. By expanding functions
into Taylor series, we can analyze the
behavior of complex systems.
3 How can researchers
leverage Taylor's theorem in
their study of physics?
Researchers can utilize Taylor's
theorem to gain insights into the
behavior of physical systems without
resorting to complicated mathematical
models. This simplifies the analysis
process and aids in understanding
fundamental principles.
Taylor's Theorem in Financial Modeling
Financial Modeling
Taylor's theorem plays a crucial
role in financial modeling. It
allows us to approximate
functions related to asset prices,
interest rates, and risk measures.
By using Taylor series
expansions, we can make
accurate predictions.
Predicting Trends
With Taylor's theorem, we can
estimate the behavior of stock
market trends. By considering
higher-order derivatives, we
obtain more precise predictions,
enabling investors and traders to
make better-informed decisions.
Estimating Financial
Functions
Taylor's theorem is instrumental
in estimating financial functions
such as option pricing and
portfolio returns. By expanding
these functions into Taylor
series, we can accurately model
and manage financial risk.
The Fascinating World of Using Taylor's
Theorem in Finance
1 How can Taylor's 2 What is an 3 Why is Taylor's
theorem be example theorem valuable
applied in demonstrating the in finance?
financial use of Taylor's
modeling? theorem in Taylor's theorem allows
Taylor's theorem aids in finance? us to understand the
estimating financial relationships between
functions by providing Consider valuing an different financial
approximations that option. By expanding variables, enabling us to
simplify complex the option pricing analyze portfolios,
calculations. This helps formula using Taylor's assess risk, and optimize
analysts and investors theorem, we can investment strategies
make more accurate approximate its value with greater accuracy
forecasts and develop based on different and efficiency.
effective strategies. market conditions, such
as changes in stock
price and volatility.
The Fascinating World of Using Taylor's
Theorem in Finance

One common application of Taylor series in finance is the

calculation of the present value of a future cash flow. The formula

for the present value (PV) of a single cash flow FV (future value) at

time t in the future, using a continuous discount rate r, can be

expressed using a Taylor series expansion as follows:

PV = FV / e^(rt)
Here's the Taylor series expansion of the exponential function e^(rt) around t = 0:

e^(rt) = 1 + (rt) + (1/2!)(rt)^2 + (1/3!)(rt)^3 + ...

To find the present value of the future cash flow, you can truncate the series at a desired degree of precision:

PV ≈ FV * [1 + (rt) + (1/2!)(rt)^2 + ...]

.

You can solve for PV by including as many terms as necessary to achieve the desired level of accuracy.
For example:

if you want to calculate the present value of $1,000 to be received in 5 years with a 5% annual continuous
compounding rate, you can use the formula:
PV = $1,000 / e^(0.05 * 5)

PV ≈ $1,000 / [1 + (0.05 * 5) + (1/2!)(0.05 * 5)^2]

PV ≈ $1,000 / [1 + 0.25 + 0.00625]

PV ≈ $1,000 / 1.25625

PV ≈ $796.64 (rounded to two decimal places) .

So, the present value of $1,000 to be received in 5 years with a 5% annual continuous compounding rate is
approximately $796.64. This demonstrates how Taylor series can be applied in finance to estimate present
values and other financial calculations
2) Option Pricing:

Question: Calculate the approximate value of N(d1) in the Black-Scholes option

pricing model for a call option with the following parameters:

•Stock price (S): $50

•Strike price (X): $55
•Time to expiration (t): 0.5 years
•Risk-free interest rate (r): 0.05 (5%)
•Volatility (σ): 0.2 (20%)
Use the Taylor series expansion of the error function to approximate
N(d1)
Solution:

.
The Fascinating World of Using Taylor's
Theorem in Physics

Taylor's theorem is a valuable tool in physics for approximating

functions and making predictions based on the behavior of physical

systems. Let's consider a basic example of how Taylor's theorem

can be used in physics: deriving the equations of motion for a

simple harmonic oscillator.

Problem: Derive the equation of motion for a simple harmonic oscillator

Solution:
• Newton's Second Law: Start with F=ma, where F is the net force, m is mass, and a is acceleration.
• Hooke's Law: For a spring, F=−kx, where k is the spring constant, and x is displacement from equilibrium
.

• Taylor's Theorem: Use Taylor's theorem to approximate F(x) around x=0: F(x)=−kx.
• Equation of Motion: Apply Newton's second law to obtain ma=−kx.
• Simplify: Rearrange to a+(k​/m)x=0.
• Solution: The solution is x(t)=Acos(ωt)+Bsin(ωt), where A, B, and ω are constants.
The Fascinating World of Using Taylor's
Theorem in Economics

Economists use Taylor series to simplify complex

economic models, making them easier to analyze. They
apply Taylor series to estimate the effects of policy
changes on economic variables, perform sensitivity
analysis, forecast economic conditions, assess risks, and
optimize economic decisions. This mathematical tool
plays a crucial role in guiding economic policy,
monetary policy, trade policy, and economic modeling.
Question: In an economic model, a country's GDP (Gross Domestic Product) is approximated as a function of time t
using a Taylor series expansion. The GDP at time t0​is GDP(t0​), and the derivative of GDP with respect to time is d/dt
GDP​. Calculate the estimated GDP at a future time t1​after a small increase Δt in time, assuming that the rate of
change in GDP remains approximately constant.
Solution:

.
 Result:

In conclusion, economists often use Taylor series expansions to analyze economic models and
estimate the effects of various policy changes on economic variables. This mathematical technique
allows them to approximate how economic variables evolve over time, especially when it is assumed
that the rate of change remains approximately constant over small intervals. By applying Taylor's
theorem, economists can make short-term forecasts and gain insights into the potential impacts of
policy decisions on key economic indicators like GDP. This application of Taylor series .

demonstrates its versatility in various fields, including economics, where it aids in decision-making
and policy evaluation.
The Fascinating World of Using Taylor's
Theorem in Computer Graphics:

Taylor series are a critical mathematical tool in

computer graphics, serving two main purposes:
rendering curves and surfaces, and facilitating smooth
animation interpolation between keyframes. They
simplify complex mathematical descriptions of shapes,
contribute to visual realism, and ensure efficiency in
generating graphics. Taylor series are essential for
creating visually appealing and realistic digital images,
animations, and special effects in various applications,
including video games, movies, and simulations.
Question: In computer graphics, a quadratic Bézier curve is defined by control points P0​, P1​, and P2​.
Suppose we want to approximate this curve near the parameter value t=t0​using a Taylor series expansion. The
equation for the quadratic Bézier curve is:
B(t)=(1−t)2⋅P0​+2(1−t)t⋅P1​+t2⋅P2​
Calculate the Taylor series expansion for the curve B(t) around the parameter value t0​.

Solution:

.
.
 Conclusion
Taylor series and Taylor's theorem are versatile mathematical tools that have widespread
applications in engineering, physics, computer science, economics, finance, scientific
research, medicine, astronomy, education, and many other fields. They enable the
approximation of complex functions, aid in modeling physical phenomena, support
numerical methods and algorithms, assist in data analysis and prediction, and enhance
decision-making processes. These tools play a crucial role in solving real-world problems,
advancing knowledge, and improving technology and education, making them .

invaluable in various aspects of life and across diverse disciplines

THANK YOU .