Hi
I understand the model answer in the revision books takes the SDE for d(log X) and then applies Ito's lemma. By substituting in the differential equation for dX then leads to the answer given in the question.
But why do pick d(logX) to apply Ito's lemma? Why not some other function?
Any help greatly appreciated!
L
I understand the model answer in the revision books takes the SDE for d(log X) and then applies Ito's lemma. By substituting in the differential equation for dX then leads to the answer given in the question.
But why do pick d(logX) to apply Ito's lemma? Why not some other function?
Any help greatly appreciated!
L