--%>
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 : Elasticity of Demand For the demand

    For the demand function D(p)=410-0.2p(^2), find the maximum revenue.

    		•
  • Q : How to calculate area of pyramid

    Calculate area of pyramid, prove equation?

    		•
  • Q : Who had find Monte Carlo and finite

    Who had find Monte Carlo and finite differences of the binomial model?

    		•
  • Q : Who firstly discovered mathematical

    Who firstly discovered mathematical theory for random walks, that rediscovered later by Einstein?

    		•
  • Q : Problem on inventory merchandise AB

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

    		•
  • Q : Problem on Fermats method A public key

    A public key for RSA is published as n = 17947 and a = 3. (i) Use Fermat’s method to factor n. (ii) Check that this defines a valid system and find the private key X.

    Q : Linear programming model of a Cabinet

    A cabinet company produces cabinets used in mobile and motor homes. Cabinets produced for motor homes are smaller and made from less expensive materials than those for mobile homes. The home office in Dayton Ohio has just distributed to its individual manufacturing ce

    		•
  • Q : Set Theory & Model of a Boolean Algebra

    II. Prove that Set Theory is a Model of a Boolean Algebra The three Boolean operations of Set Theory are the three set operations of union (U), intersection (upside down U), and complement ~.  Addition is set

    		•
  • Q : Formulating linear program of a

    A software company has a new product specifically designed for the lumber industry. The VP of marketing has been given a budget of $1,35,00to market the product over the quarter. She has decided that $35,000 of the budget will be spent promoting the product at the nat

    		•
  • Q : Uniform scaling what is uniform scaling

    what is uniform scaling in computer graphic

    		•