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.
The homework is attached in the first two files, it's is related to Sider's book, which is "Logic for philosophy" I attached this book too, it's the third file.
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Hi, I was wondering if there is anyone who can perform numerical analysis and write a code when required. Thanks
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