Ito’s Lemma and Its Applications

Carl Chiarella, Xuezhong (Tony) He () and Christina Sklibosios Nikitopoulos
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Christina Sklibosios Nikitopoulos: University of Technology Sydney

Chapter Chapter 6 in Derivative Security Pricing, 2015, pp 111-143 from Springer

Abstract: Abstract This chapter introduces Ito’s lemma, which is one of the most important tools of stochastic analysis in finance. It relates the change in the price of the derivative security to the change in the price of the underlying asset. Applications of Ito’s lemma to geometric Brownian motion asset price process, the Ornstein–Uhlenbeck process, and Brownian bridge process are discussed in detail. Extension and applications of Ito’s lemma in several variables are also included.

Keywords: Asset Price; Stochastic Differential Equation; Wiener Process; Colour Noise; Bond Price (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-662-45906-5_6

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DOI: 10.1007/978-3-662-45906-5_6

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