Financial

Mathematics

J. H. Gwon

Differentiability

Continuity Financial Mathematics

Differentiability and Continuity

J. H. Gwon

International Business Economics

Incheon National University

Week 2, 2025
 Linear Functions

Financial
Mathematics

J. H. Gwon Real function f : R → R

Differentiability
f (x) = mx + b, for some m, b ∈ R
Continuity

is called a linear function.

Graphically speaking, m is the slope and b is the intercept.
With respect to a unit change in x, y changes by m units,
that is,
∆y
m=
∆x
where ∆(·) is the difference operator.
A linear function is a polynomial of degree 1.
 Linear Functions

Financial
Mathematics

J. H. Gwon
A linear function f : R → R passing through a particular
Differentiability
point (x0 , y0 ) with slope m can be represented by
Continuity

y − y0 = m(x − x0 ).

A linear function passing through two points (x1 , y1 ) and

(x2 , y2 ) can be represented by
y1 − y2
y − y1 = (x − x1 ) or
x1 − x2
y1 − y2
y − y2 = (x − x2 ).
x1 − x2
 Tangent Slope

Financial
Mathematics

J. H. Gwon
Suppose real function f : R → R. We call the slope of the
tangent line to the graph of f at (x0 , f (x0 )) the derivative of f
Differentiability
at x0 , and we write it as
Continuity

df
f ′ (x0 ) or (x0 ).
dx
 Newton’s Quotient

Financial
Mathematics

J. H. Gwon

Differentiability

Continuity

We can approximate f ′ (x0 ) by

f (x0 + hn ) − f (x0 ) f (x0 + hn ) − f (x0 )

=
(x0 + hn ) − x0 hn

and it gets closer to f ′ (x0 ) as hn → 0.

 Derivative

Financial
Mathematics

J. H. Gwon

Differentiability

Continuity Definition
Let (x0 , f (x0 )) be a point on the graph of y = f (x). The
derivative of f at x0 , written
df
f ′ (x0 ) or (x0 )
dx
is the slope of the tangent line to the graph of f at (x0 , f (x0 )).
 Differentiability

Financial
Mathematics

J. H. Gwon

Differentiability Analytically,
Continuity
f (x0 + h) − f (x0 )
f ′ (x0 ) = lim
h→0 h
if the above limit exists.
When the limit does exist, we say that the function is
differentiable at x0 with derivative f ′ (x0 ).
For domain X , when the function is differentiable for any
x ∈ X , we say f is a differentiable function.
 Examples

Financial
Mathematics f (x) = x n .
J. H. Gwon
f ′ (x0 )
Differentiability

Continuity
(x0 + h)n − f (x0 )
= lim
h→0 h
x0 + nhx0n−1 + n(n − 1)h2 x0n−2 + · · · + hn − x0n
n


= lim
n→h h
= lim nx0n−1 + h n(n − 1)x0n−2 + · · · hn−1



n→h
=nx0n−1

For polynomial f (x) = a0 + a1 x + · · · an x n , the derivative

function is

f ′ (x) = a1 + 2a2 x + · · · nan x n−1 .

 Useful Properties

Financial
Mathematics

J. H. Gwon
Suppose that k is an arbitrary constant and that f and g are
differentiable functions at x = x0 . Then
Differentiability

Continuity
1 (f ± g )′ (x0 ) = f ′ (x0 ) ± g ′ (x0 ),
2 (kf )′ (x0 ) = k (f ′ (x0 )),
3 (f · g )(x0 ) = f ′ (x0 )g (x0 ) + f (x0 )g ′ (x0 ),
 ′ ′ ′
4
f
g (x0 ) = f (x0 )g (x 0 )−f (x0 )g (x0 )
(g (x ),)2
,
0

5 (f ◦ g )′ (x 0) := (f (g (x0 ))′ = f ′ (g (x0 )) · g ′ (x0 ). [Chain

Rule]
Let y := g (x) and z := f (y ). Then

d(f ◦ g )(x) dz dy
=
dx dy dx
 Useful Examples

Financial
Mathematics

J. H. Gwon
Remark that
f (x) = e x . Then f ′ (x) = e x .
Differentiability

Continuity
n
(Euler’s number) e = limn→∞ 1 + n1
In finance, e r is the amount of money at the end of the
period with continuously compounded interest rate r .
f (x) = ln x for x > 0. Then f ′ (x) = x1 .
It is the inverse function of exp(x).
f (x) = ax for some a > 0. Then f ′ (x) = ax (ln a).
f (x) = sin x. Then f ′ (x) = cos x.
f (x) = cos x. Then f ′ (x) = − sin x.
f (x) = tan x := sin x
cos x . Then f ′ (x) = 1
cos2 x =: sec2 x.
 Nondifferentiable Function

Financial
Mathematics

J. H. Gwon f (x) is not differentiable at x0 if there does not exist f ′ (x0 ).

Differentiability

Continuity
 Continuity

Financial
Mathematics

J. H. Gwon

Differentiability

Continuity
Definition
A function f : D → R is continuous at x0 ∈ D if for any
sequence {xn } which converges to x0 in D, f (xn ) converges to
f (x0 ).

Definition
A function f : D → R is continuous on a set U ⊂ D if it is
continous at every x ∈ U.
 Continuously Differentiable Function

Financial
Mathematics
Remarks.
J. H. Gwon
If f is differentiable, then f is continuous.
Differentiability
Hint. Think of the contrapositive.
Continuity
The converse does not hold true in general.
Counterexample. f (x) = |x|.

Definition
A function f : D → R is continuously differentiable if it is
differentiable and f ′ (x) is a continuous function. Simply, we
denote f ∈ C 1 .

When f is continuous, we denote it f ∈ C 0 .

Even if f is differentiable, we cannot maintain f is
continuously differentiable.