The tag has no usage guidance.

learn more… | top users | synonyms

1
vote
1answer
124 views

Ito calculus problem

given $S^1$ satifying the SDE $\quad dS_{t}^{1}=S_{t}^{1}((r+\mu)dt + \sigma dW_t), \quad S_{0}^{1}=1 $ and the safe asset $S_{t}^{0}$ $\quad S_{t}^{0}:=e^{rt} \quad for \quad r\geq 0$ Q1. how ...
0
votes
1answer
30 views

what is the meaning of the differential of an arbitrary adapted random process?

I was working on the definition of the self-financing portfolio. Say $V=\phi_tS_t+\psi_t A_t$ where $S_t$ and $A_t$ are the stock price and the money market price at time $t$, resp, and $\phi_t$ and ...
0
votes
1answer
86 views

Stochastic process theory question

*S follows a process $dS= mSdt + oSdz$ where m and o are constant. What is the probability followed by $ Y=(Se)^{(r-t)} $. If S follows a process $ dS= k (b-S) dt + oSdz $ where k, b, o are ...
3
votes
0answers
58 views

Dixit & Pindyck (1993) Chapter 4, equation 13

Starting with the Bellman equation for the optimal stopping problem: $$F(x,t)=max\{\Omega(x,t), \pi(x,t)+(1+\rho dt)^{-1} E[F(x+dx, t+dt)|x]\}$$ In the continuation region where the second term is the ...
2
votes
0answers
109 views

Multivariate Itô's lemma

Hey guys I'm looking for worked examples who show how to apply Itô's lemma in several variables, starting from the very basics. Thank you in advance!
2
votes
0answers
51 views

Bond yield: is it martingale with respect to risk-neutral probability measure of some numeraire?

Let $t$ mean current time, let $T_0, T_n$ mean two times such that $T_0\le T_n$, and let $y_t[T_0, T_n]$ mean the forward swap rate of a swap starting at $T_0$ and ending at $T_n$. (I am ignoring ...
1
vote
0answers
102 views

stochastic calculus and multidimentional itos lemma

I am considering a number of assets (N) in a portfolio. each asset follows a geometric Brownian motion process therefore the stochastic differential equation is dS(i) = S(i)μdt + S(i)σdX(i). The ...
1
vote
0answers
115 views

In what kind of stochastic process Ito's lemma is adopted?

I have been told that Ito's lemma serves as the stochastic calculus counterpart of the chain rule. And yet again my tutor mentioned it is not used for all stochastic processes. Is this statement ...
0
votes
0answers
18 views

self financing property vs. unlimited borrowing

How the self financing property of a portfolio should be understood in the problems where the unlimited access to the borrowing is assumed?