Explain lognormal stochastic differential equation
Explain lognormal stochastic differential equation for evolution of an asset.
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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.
It's a problem set, they are attached. it's related to Sider's book which is "Logic to philosophy" I attached the book too. I need it on feb22 but feb23 still work
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