# Questions tagged [stochastic-calculus]

A branch of mathematics that operates on stochastic processes.

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### How does this transformation for Euler Scheme in mean reverting SDEs alleviate instability?

I saw this text in the book - Interest Rate Modelling by Andersen volume 1 on Page 112: I am unable to understand: How does instability arise when we use the Euler scheme on X(t)? What change does ...
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### Unconditional Expectation vs. Conditional Expectation at time $0$

In most mathematical finance books I have read (all of them actually), the expectation, with respect to the sigma algebra at time $0$, $\mathcal F_0$, is considered the same as the unconditional ...
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### Novikov condition for Vasicek process

Suppose that we have a money account $S^{(0)}$ with dynamics \begin{align} dS^{(0)}_{t} = r_{t} S^{(0)}_{t}\, dt, \end{align} where \begin{align} dr_t = a(b-r_t)\, dt + \sigma_{r} \, dW_t^{(0)}. \...
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### negative values in geometric brownian motion

A GBM $\frac{dx}{x} = \mu dx + \sigma dW$ solves to $x_t = x_o e^{(\mu - \sigma^2)t + \sigma W_t}$ From the solution, it is clear that $x_t$ cannot become negative. However, it is not so clear ...
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### Limits of integration when applying stochastic Fubini theorem to Brownian motion

I'm looking at the solution below from Quantuple, it's a nice, succinct solution but I'm confused about how the limits of the integrals in the second line come from. Could someone please elaborate on ...
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### Stochastic Differential equation: CAPM

Let $R=(R_1, \dots ,R_M)$ā² denote a vector of excess returns of M assets observed at $n$ time points, $0<t_1<t_2< \cdots <t_n<T$, within a time span $T>0$. We wish to explain the ...
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### Pre-requisites for Finance Mathematics

I would like to pursue research in the areas of Financial Mathematics. Hoping to look into Operations Research, Risk Management and Stochastic Modeling. Anyone got some suggestions on useful resources ...
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### How to prove that $X_s=\int^s_0 f(u)dW_u$ is independant from $X_t-X_s$

I am asked to prove that $X_s$ and $X_t-X_s$ are independant for $s<t$ then $$X_t=\int^t_0f(u)dW_u$$ for a deterministic function $f$ and brownian motion $W_t$. For the proof I am giving a hint to ...