Question: Consider Zt = ertXt where Xt is an exponential Wiener process: Xt = eWt (a) Calculate the expected value of the increment dZ(t). (b) Is

Consider
Zt = e−rtXt
where Xt is an exponential Wiener process:
Xt = eWt
(a) Calculate the expected value of the increment dZ(t).
(b) Is Zt a martingale?
(c) Calculate E[Zt]. How would you change the definition of Xt to make Zt a martingale?
(d) How would E[Zt] then change?

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a We can calculate the expected value of an increment of dZ t by applying Itos Lemma First we look a... View full answer

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