Let H be a Wiener process. Consider the geometric process S again: (a) Calculate dS t .

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Let H be a Wiener process. Consider the geometric process S again:

(a) Calculate dS_t.

(b) What is the ?expected rate of change? of S_t?

(c) If the exponential term in the definition of S_t, did not contain the 1/2?²t term, what would be the dS_t? What would then be the expected change in S_t?

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An Introduction to the Mathematics of financial Derivatives

ISBN: 978-0123846822

2nd Edition

Authors: Salih N. Neftci

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Question Posted: Aug 17, 2011 10:42 AM

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Let H be a Wiener process. Consider the geometric process S again: (a) Calculate dS t .

Question:

S, = Syelu-i:+oW,

Step by Step Answer:

Geometric Brownian motion a dS t S t dt S t dW t which follows from Itos lemma see ...View the full answer

An Introduction to the Mathematics of financial Derivatives

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