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Mathematical Foundations for Quant Finance
0 of 256 lessons
      1. 2.1.1 Limits: what a function approachesConcept · 25 min
      2. 2.1.2 One-sided limits and continuityConcept · 30 min
      3. 2.1.3 Limits at infinityConcept · 30 min
      4. 2.1.4 Practice set: limitsPractice set · 25 min
      5. 2.1.5 Case study: continuous compounding as a limitCase study · 30 min

Level 2, Single-variable calculus 2.1 Limits and continuity Lesson 3 of 5

ConceptLesson 2.1.3 in Level 2, Single-variable calculus. About 30 minutes.

Limits at infinity

What a limit at infinity means

Lessons 2.1.1 and 2.1.2 let xx close in on a number. Here xx runs off without end, and the question is where f(x)f(x) heads. The symbol ∞\infty (infinity) is not a number: x→∞x \to \infty is short for "xx grows without end", and x→−∞x \to -\infty for "xx falls without end".

Start with 1x\frac{1}{x}. For x=10x = 10, 100, 1000 and 10610^6 it is 0.1, 0.01, 0.001 and 0.000001. A fixed top over a bottom that keeps growing heads for 0.

For x=−10x = -10 and −1000-1000 it is −0.1-0.1 and −0.001-0.001, so it heads for 0 from below. Both directions give the same limit, 0.

The same holds for any fixed number over a growing power of xx. 7x2\frac{7}{x^2} and 4x\frac{4}{\sqrt{x}} both tend to 0 as x→∞x \to \infty, because their bottoms grow without end.

Rule: Limit at infinity

lim⁡x→∞f(x)=L\lim_{x \to \infty} f(x) = L

f(x)f(x) gets as close to LL as you like once xx is large enough. For x→−∞x \to -\infty, read "once xx is far enough below 0". LL has the units of the output.

If f(x)f(x) itself grows without end, write lim⁡x→∞f(x)=∞\lim_{x \to \infty} f(x) = \infty, as for a blow-up in lesson 2.1.2. That says how the limit fails; it is not a number. For example x2→∞x^2 \to \infty in both directions.

Ratios of polynomials

For large xx, only the highest power on top and on the bottom matters. Take 3x+1x+2\dfrac{3x + 1}{x + 2}. Both top and bottom grow without end, so neither part alone settles it:

xx10100100010610^6
value2.5833332.950982.995012.999995
xx−10-10−100-100−1000-1000−106-10^6
value3.6253.051023.005013.000005

The values head for 3: from below as xx grows, from above as xx falls. Algebra explains why. Divide top and bottom by xx, the highest power on the bottom, and every leftover term has the form numberx\frac{\text{number}}{x}, which tends to 0:

3x+1x+2=3+1x1+2x  →  3+01+0=3\frac{3x + 1}{x + 2} = \frac{3 + \frac{1}{x}}{1 + \frac{2}{x}} \;\to\; \frac{3 + 0}{1 + 0} = 3

The same algebra gives the size of the miss: 3−3x+1x+2=5x+23 - \frac{3x + 1}{x + 2} = \frac{5}{x + 2}. At x=48x = 48 the function is 550=0.1\frac{5}{50} = 0.1 below 3.

Try it

The cell builds both tables, then lets SymPy take the limit in each direction. SymPy writes ∞\infty as sp.oo and −∞-\infty as -sp.oo.

⌘/Ctrl + Enter runs the cell

Equal, smaller and bigger top degree

The degree of a polynomial is its highest power (lesson 1.3.1), and the leading coefficient is the number in front of it. Three ratios with the same bottom, 2x2+32x^2 + 3, show the three cases:

xx101001000
4x+12x2+3\frac{4x + 1}{2x^2 + 3}0.201970.0200470.002
4x2+12x2+3\frac{4x^2 + 1}{2x^2 + 3}1.9753691.999751.999998
4x3+12x2+3\frac{4x^3 + 1}{2x^2 + 3}19.70936199.9700541999.997001

Divide each top and bottom by x2x^2. The bottom becomes 2+3x22 + \frac{3}{x^2}, which tends to 2. The tops become 4x+1x2\frac{4}{x} + \frac{1}{x^2}, then 4+1x24 + \frac{1}{x^2}, then 4x+1x24x + \frac{1}{x^2}.

  • Smaller top degree: the top tends to 0, so the ratio tends to 02=0\frac{0}{2} = 0.
  • Equal degrees: the top tends to 4, so the ratio tends to 42=2\frac{4}{2} = 2, the ratio of the leading coefficients.
  • Bigger top degree: the top grows without end, so the ratio does too. It behaves like 4x2=2x\frac{4x}{2} = 2x, and at x=1000x = 1000 it is 1999.997001.

The ratios 4xk+12x2+3\frac{4x^k + 1}{2x^2 + 3} for k=1k = 1, 2 and 3. A smaller top degree tends to 0, equal degrees to 42=2\frac{4}{2} = 2, and a bigger top degree grows without bound.

Rule: Ratios of polynomials at infinity

axm+⋯bxn+⋯ behaves like axmbxnm<n: →0m=n: →abm>n: →∞ or −∞\begin{gathered} \frac{a x^m + \cdots}{b x^n + \cdots} \text{ behaves like } \frac{a x^m}{b x^n} \\ m < n: \ \to 0 \\ m = n: \ \to \tfrac{a}{b} \\ m > n: \ \to \infty \text{ or } -\infty \end{gathered}

Keep only the leading term on top, axma x^m, and on the bottom, bxnb x^n. A smaller top degree gives 0, equal degrees give the ratio of the leading coefficients, and a bigger top degree has no limit.

When the top degree is bigger, the sign depends on the direction. x2x+1\frac{x^2}{x + 1} behaves like x2x=x\frac{x^2}{x} = x, so it tends to ∞\infty as x→∞x \to \infty and to −∞-\infty as x→−∞x \to -\infty.

A polynomial on its own is the case with bottom 1, and its leading term decides. x3→∞x^3 \to \infty as x→∞x \to \infty and x3→−∞x^3 \to -\infty as x→−∞x \to -\infty: the two ends point opposite ways, as lesson 1.3.1 said of every cubic. −2x3+5x-2x^3 + 5x does the reverse.

Try it

The three ratios in both directions, then x2x+1\frac{x^2}{x + 1}, then two polynomials. Each line prints the limit as x→∞x \to \infty, then as x→−∞x \to -\infty.

⌘/Ctrl + Enter runs the cell

Exponentials against powers

exe^x grows faster than any power of xx. Lesson 1.4.2 showed 2x2^x overtaking x2x^2; the same happens with any base above 1 and any power. So a power over exe^x tends to 0, and exe^x over a power grows without end.

The race can take a while to decide. Here is x3ex\frac{x^3}{e^x}:

xx1351020
x3ex\frac{x^3}{e^x}0.36791.3440.84220.04540.00001649

It rises at first: x3x^3 is ahead of exe^x between about x=1.857x = 1.857 and x=4.536x = 4.536. After that exe^x pulls away and the ratio heads for 0. A bigger power holds out longer: x10ex\frac{x^{10}}{e^x} is about 454,000 at x=10x = 10 but 0.00001884 at x=50x = 50.

The same race settles exponential decay. e−x=1exe^{-x} = \frac{1}{e^x}, so e−x→0e^{-x} \to 0 as x→∞x \to \infty; at x=10x = 10 it is already 0.0000454. Likewise ex→0e^x \to 0 as x→−∞x \to -\infty.

Logarithms lose the race to every power. ln⁡x\ln x grows without end, but slowly: ln⁡(106)\ln(10^6) is only 13.815511. So ln⁡xx→0\frac{\ln x}{x} \to 0, and it is 0.00001382 at x=106x = 10^6.

Rule: The growth race

xpex→0ln⁡xxp→0as x→∞, for any power p>0\begin{gathered} \frac{x^p}{e^x} \to 0 \qquad \frac{\ln x}{x^p} \to 0 \\ \text{as } x \to \infty, \text{ for any power } p > 0 \end{gathered}

Exponentials beat powers, and powers beat logarithms, however the race starts.

Try it

The table of x3ex\frac{x^3}{e^x}, then x10ex\frac{x^{10}}{e^x} at 10 and 50. The format .4g keeps 4 significant figures. 1.649e-05 means 1.649×10−51.649 \times 10^{-5}, or 0.00001649, and 4.54e+05 means 454,000.

SymPy confirms x3ex→0\frac{x^3}{e^x} \to 0, exx3→∞\frac{e^x}{x^3} \to \infty and ln⁡xx→0\frac{\ln x}{x} \to 0.

⌘/Ctrl + Enter runs the cell

Horizontal asymptotes

When f(x)→Lf(x) \to L as x→∞x \to \infty or as x→−∞x \to -\infty, the graph levels off along the line y=Ly = L. That line is a horizontal asymptote.

A ratio of polynomials with equal degrees, like 3x+1x+2\frac{3x + 1}{x + 2}, has the same one in both directions. A smaller top degree gives the asymptote y=0y = 0, and a bigger one gives none.

The graph of 3x+1x+2\frac{3x + 1}{x + 2} hugs its horizontal asymptote y=3y = 3 in both directions, missing it by 5x+2\frac{5}{x + 2}: 1 at x=3x = 3, 0.25 at x=18x = 18. The dashed vertical line marks the blow-up at x=−2x = -2 (lesson 2.1.2).

The two directions can give different asymptotes. Take ex1+ex\frac{e^x}{1 + e^x}, which equals 11+e−x\frac{1}{1 + e^{-x}} after dividing top and bottom by exe^x.

As x→∞x \to \infty, e−x→0e^{-x} \to 0, so the value tends to 11+0=1\frac{1}{1 + 0} = 1. As x→−∞x \to -\infty, ex→0e^x \to 0, so the first form tends to 01+0=0\frac{0}{1 + 0} = 0. Its values at −10-10, −5-5, 0, 5 and 10 are 0.000045, 0.006693, 0.5, 0.993307 and 0.999955.

Two more cases to watch for:

  • A graph can cross its asymptote. xx2+1\frac{x}{x^2 + 1} has asymptote y=0y = 0 in both directions, yet at x=0x = 0 the graph sits on it and crosses.
  • Some functions have no limit at infinity. sin⁡x\sin x keeps swinging between −1-1 and 1. At x=10x = 10, 100, 1000 and 10610^6 it is −0.544-0.544, −0.5064-0.5064, 0.8269 and −0.35-0.35.

Try it

The values of 11+e−x\frac{1}{1 + e^{-x}}, then its limit in each direction: 1 to the right and 0 to the left.

⌘/Ctrl + Enter runs the cell

Limits as n→∞n \to \infty

A sequence (lesson 1.5.1) is a function of a whole number nn, and its limit as n→∞n \to \infty works the same way. So 2n+1n→2\frac{2n + 1}{n} \to 2, by the equal-degree rule, and 0.5n→00.5^n \to 0, as lesson 1.5.1 showed.

One limit needs care. In (1+1n)n\left(1 + \frac{1}{n}\right)^n the base tends to 1, but the power grows without end. Guessing "1 to any power is 1" is wrong:

nn110100100010610^6
(1+1n)n\left(1 + \frac{1}{n}\right)^n22.5937422.7048142.7169242.71828

The base shrinking towards 1 and the power growing pull against each other, and they settle on ee, as in lesson 1.4.2. Case study 2.1.5 uses the same limit with interest: (1+rn)n→er\left(1 + \frac{r}{n}\right)^n \to e^r.

Try it

The table, then the exact limit. SymPy writes ee as E.

⌘/Ctrl + Enter runs the cell

Common mistakes

  1. ∞∞\frac{\infty}{\infty} is not 1. When top and bottom both grow, compare their leading terms: 3x+1x+2→3\frac{3x + 1}{x + 2} \to 3.
  2. Compare powers, not the size of the numbers. x+10002x→12\frac{x + 1000}{2x} \to \frac{1}{2}, even though at x=10x = 10 it is 50.5.
  3. Leading terms win only once xx is large. x3−100x2x^3 - 100x^2 is −125,000-125{,}000 at x=50x = 50 and 0 at x=100x = 100. Likewise x3ex\frac{x^3}{e^x} rises until x=3x = 3 before it falls.
  4. Check both directions. x3x^3 tends to −∞-\infty on the left, and ex1+ex\frac{e^x}{1 + e^x} has a different asymptote on each side.
  5. A graph can cross its horizontal asymptote. The asymptote describes the far ends only.
  6. 1∞1^\infty is not 1. (1+1n)n→e\left(1 + \frac{1}{n}\right)^n \to e, not 1.

Limits at infinity

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How to type answers
  • Powers with ^: x^7, 2^(1/3), a^-2.
  • Multiply with * or by writing side by side: 3x^2, 2(x+1).
  • ln(x) is the natural log, log(x, 2) is log base 2, e is Euler's number, sqrt(x) is a square root.
  • sin(x), cos(x) and tan(x) take radians; write pi for π and sin(x)^2 for sin²x.
  • Your first answer to each question is saved: it counts towards your score and brings the question back for review.
  • Exact answers like ln(20)/ln(3) are best. Decimals need about 4 significant figures.

Summary card

  • lim⁡x→∞f(x)=L\lim_{x \to \infty} f(x) = L: f(x)f(x) gets as close to LL as you like once xx is large enough; likewise for x→−∞x \to -\infty. ∞\infty is not a number.
  • cxp→0\frac{c}{x^p} \to 0 as x→±∞x \to \pm\infty, for any number cc and power p>0p > 0.
  • A ratio of polynomials behaves like its leading terms axmbxn\frac{a x^m}{b x^n}: 0 if m<nm < n, ab\frac{a}{b} if m=nm = n, no limit if m>nm > n.
  • Exponentials beat powers and powers beat logs: xpex→0\frac{x^p}{e^x} \to 0 and ln⁡xxp→0\frac{\ln x}{x^p} \to 0. Also e−x→0e^{-x} \to 0 as x→∞x \to \infty.
  • If f(x)→Lf(x) \to L in either direction, y=Ly = L is a horizontal asymptote. Check both directions; the graph may cross it.
  • (1+1n)n→e\left(1 + \frac{1}{n}\right)^n \to e: a base near 1 raised to a growing power need not tend to 1.

Free further reading

Optional. This lesson covers what you need; these add more examples and practice. All are free to read.