Exercises 2.6 Ornstein-Uhlenbeck SDE The Ornstein-Uhlenbeck process is dened by the following SDE dXt = ????Xtdt + dWt with the initial condition X0 = x0 2 R.

1. Is there a unique solution?

Hint: Verify the Lipschitz condition.

2. Show that the solution can be written as C(t;

f) = u(t;

f) ???? u(t; 2B ???? f)
with u a call option with strike K and maturity T. This is called the image's method.