Question
1. Consider a stock and assume it follows a geometric Brownian motion dS = dt+dz. Consider now a function G = G(S, t). i) Use
1. Consider a stock and assume it follows a geometric Brownian motion dS = dt+dz. Consider now a function G = G(S, t).
i) Use Itos lemma to find the stochastic process dG followed by G^2.
ii) Show that this value satisfies the Black-Scholes-Merton Partial Differential Equation :
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Business Analysis And Valuation Using Financial Statements Text And Cases
Authors: Krishna G. Palepu, Paul M. Healy, Victor Lewis Bernard, W.Gordon Filby
2nd Edition
0324015658, 9780324015652
