Let S be a process dS=1 dt + odW where W, is a (one-dimensional) standard Brownian...

  

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Let S be a process dS₁=1 dt + o₂dW₁ where W, is a (one-dimensional) standard Brownian motion. In each case, find the drift and volatility of X = f(t, St), where f is the function given. That is, find dX,. For both parts, write your answer in terms of p, ot, t, X₁, dt, and dW₁. That is, substitute out St. (a) (5 points) X₁ = t St. (b) (5 points) X₁ = (log S₁)³ + 3t Let S be a process dS₁=1 dt + o₂dW₁ where W, is a (one-dimensional) standard Brownian motion. In each case, find the drift and volatility of X = f(t, St), where f is the function given. That is, find dX,. For both parts, write your answer in terms of p, ot, t, X₁, dt, and dW₁. That is, substitute out St. (a) (5 points) X₁ = t St. (b) (5 points) X₁ = (log S₁)³ + 3t

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In both cases we want to find the drift and volatility of the process Xt which is defined as Xt ft S... View the full answer