Question: Consider the two GBMs which are driven by the same standard Wiener process. - Find the stochastic differential equation for the process - Imagine

Consider the two GBMs

dS1(t)=1S1(t) dt + S (t) dW (t), dS2(t)=2S2(t) dt + 2S2(t) dW

which are driven by the same standard Wiener process.

- Find the stochastic differential equation for the process (t), image text in transcribed

- Imagine a Finnish investor, whose home currency is EUR, investing on the US stock market. The stock price in EUR is the product of the stock price in USD and the exchange rate between the two currencies. Would you use the above model in this case? Why or why not?

dS1(t)=1S1(t) dt + S (t) dW (t), dS2(t)=2S2(t) dt + 2S2(t) dW (t),

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