Question: Let r follows the process drt = (r - rt)dt + dXt Use Ito's Lemma to compute the law of motion of P = F(r),
Let r follows the process
drt = γ(r - rt)dt + σdXt
Use Ito's Lemma to compute the law of motion of P = F(r), for F(X) given by
(a) F(r) = A + B r where A, B are two constants.
(b) F(r) = e A-B r where A, B are two constants, and B > 0.
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