--%>
Assignment Help - homework help

Explain lognormal stochastic differential equation

Explain lognormal stochastic differential equation for evolution of an asset.

E

Expert

Verified

One of the beginning points for typical derivatives theory is the lognormal stochastic differential equation for evolution of a certain asset. Itoˆ’s lemma defines the stochastic differential equation for value of an option on such asset. In mathematical terms, when we have a Wiener process X along with increments dX which are normally distributed along with mean zero and variance dt, in that case the increment of a function F(X) is specified by

dF = (dF/dX) dX + ½ (d2F/dX2) dt

It is a very loose dentition of Itˆ o’s lemma but it will suffice.

   Related Questions in Mathematics

  • Q : Numerical solution of PDE i want you to

    i want you to solve this assignment. this consist of two parts theoretical and coding. the code has to be created by you. no modified or copying code. you have to mention the exact solution and the proportion error. also you have to explain the sketch that you get from the code. these information

    		•
  • Q : Theorem-G satis es the right and left

    Let G be a group. (i) G satis es the right and left cancellation laws; that is, if a; b; x ≡ G, then ax = bx and xa = xb each imply that a = b. (ii) If g ≡ G, then (g-1)

    		•
  • Q : Research Areas in Medical Mathematical

    Some Research Areas in Medical Mathematical Modelling:1. Modeling and numerical simulations of the nanometric aerosols in the lower portion of the bronchial tree. 2. Multiscale mathematical modeling of

    		•
  • Q : Problem on inverse demand curves In

    In differentiated-goods duopoly business, with inverse demand curves: P1 = 10 – 5Q1 – 2Q2P2 = 10 – 5Q2 – 2Q1 and per unit costs for each and every firm equal to 1.<

    		•
  • Q : Explain trading of call options Explain

    Explain trading of call options.

    		•
  • Q : Problem on Maple (a) Solve the

    (a) Solve the following  by: (i) First reducing the system of first order differentiat equations to a second order differential equation. (ii) Decoupling the following linear system of equa

    		•
  • Q : Numerical Analysis Hi, I was wondering

    Hi, I was wondering if there is anyone who can perform numerical analysis and write a code when required. Thanks

    		•
  • Q : Define Big-O notation Big-O notation :

    Big-O notation: If f(n) and g(n) are functions of a natural number n, we write f(n) is O(g(n)) and we say f is big-O of g if there is a constant C (independent of n) such that f

    		•
  • Q : Problem on inventory merchandise AB

    AB Department Store expects to generate the following sales figures for the next three months:                            

    		•
  • Q : First-order formulas over the

    Consider the unary relational symbols P and L, and the binary relational symbol On, where P(a) and I(a) encode that a is apoint and a (sraight) line in the 2-dimensional space, respectively, while On(a,b) encodes  that a is a point, b is a line, and o lies on b.

    		•