Two shares follow geometric Brownian motions, i.e. dS 1 = 1 S 1 dt +

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Two shares follow geometric Brownian motions, i.e.
dS₁ = μ₁S₁ dt + σ₁S₁ dX₁,

dS₂ = μ₂S₂ dt + σ₂S₂ dX₂.

The share price changes are correlated with correlation coefficient ρ. Find the stochastic differential equation satisfied by a function f(S₁, S₂).

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Introduces Quantitative Finance

ISBN: 978-0470319581

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Authors: Paul Wilmott

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Question Posted: Sep 23, 2020 05:52 AM

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Two shares follow geometric Brownian motions, i.e. dS 1 = 1 S 1 dt +

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dfS1S2 1S1 2S2dfS1S2 1S1 2S2dX1 1S1 2S2dX2 EXPLAINATION The stochas...View the full answer

Introduces Quantitative Finance

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