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5.The process followed by a variable X is
dX = mX dt+sX dz
What is the coefficient of dz in the process for the square of X.
A.sX
B.sX2
C.2sX2
D.msX
dX = mX dt+sX dz
What is the coefficient of dz in the process for the square of X.
A.sX
B.sX2
C.2sX2
D.msX
Answer: C
From Ito’s lemma, the coefficient of dz is where f = X2. Because , the coefficient of dz is 2sX2.
From Ito’s lemma, the coefficient of dz is where f = X2. Because , the coefficient of dz is 2sX2.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015