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June 15th, 2019, 10:47 PM  #1 
Newbie Joined: Jun 2019 From: Malaysia Posts: 1 Thanks: 0  Deriving Ito process with a drift from geometric Brownian motion.
Please help me solve this question. Thank you. Let the Geometric Brownian motion be: ∆S/S=µ∆t + σϵsqrt(∆t) ∆S = change in stock price (s) µ = expected rate of return σ = volatility of shock ϵ has standard normal N(0,1) distribution σϵsqrt(∆t) = stochastic companion i) Derive the Ito process with a drift for the above ii) Given that the option price at time t is f(s,t), derive the process with Ito's lemma. Give an example. 

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brownian, deriving, drift, geometric, ito, motion, process 
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