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S_t and dS_t

J

jensen

Member
what is the relation between these?

1) St = So . exp (r-sigmaˆ2/2)t + sigma . Zt

2) dSt = St . [mu.dt + sigma.dZt]
 
solve the SDE by calculating dLnSt from dSt (ITO lemma), then integrate out, then exponentiate.
 
solve the SDE by calculating dLnSt from dSt (ITO lemma), then integrate out, then exponentiate.

you meant (2) becomes (1)? so i have :

dlnSt = mu.dt + sigma.dZt ---(3)

then I let f = (3)

using ito lemma

df = df/dt.dt +df/dS.dS + 1/2 d2f/dS2.dt

how do i substitute in?

thanks examstudent.
 
cant undertsand your notation, but my notation is crap,

but f= ln S
and df/ds =1/s
and 2nd deriv = -1/S^2
 
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