# Question: Assume that one stock follows the process dS S dt

Assume that one stock follows the process dS/S = αdt + σdZ (20.44)

Another stock follows the process dQ/Q = αQdt + σdZ + dq1+ dq2 (20.45)

a. If there were no jump terms (i.e., λ1 = λ2 = 0), what would be the relation between α and αQ?

b. Suppose there is just one jump term (λ2 = 0) and that Y1> 1. In words, what does it mean to have Y1> 1? What can you say about the relation between α and αQ?

c. Write an expression for αQ when both jump terms are nonzero. Explain intuitively why αQ might be greater or less than α.

Another stock follows the process dQ/Q = αQdt + σdZ + dq1+ dq2 (20.45)

a. If there were no jump terms (i.e., λ1 = λ2 = 0), what would be the relation between α and αQ?

b. Suppose there is just one jump term (λ2 = 0) and that Y1> 1. In words, what does it mean to have Y1> 1? What can you say about the relation between α and αQ?

c. Write an expression for αQ when both jump terms are nonzero. Explain intuitively why αQ might be greater or less than α.

## Answer to relevant Questions

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