Tuesday, 11 February 2020

Consider a stock and assume it follows a geometric Brownian motion dS = µdt+σdz.

Consider a stock and assume it follows a geometric Brownian motion dS = µdt+σdz. Consider now a function G = G(S, t).
i) Use Itˆo’s lemma to find the stochastic process dG followed by G.
ii) Use Itˆo’s lemma to find the stochastic process followed by G(S) = ln S.

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