Question: Let Z be a Wiener process. Given a non-dividend paying stock with expected rate of return u and volatility o, assume that the stock price

Let Z be a Wiener process. Given a non-dividend paying stock with expected rate of return u and volatility o, assume that the stock price S follows the It process dS = us dt +oS dz. (i) State Ito's Lemma. [4] (ii) Find the process that is followed by the variable ts. Does ts also follow a geometric Brownian motion? [6] -000 Let Z be a Wiener process. Given a non-dividend paying stock with expected rate of return u and volatility o, assume that the stock price S follows the It process dS = us dt +oS dz. (i) State Ito's Lemma. [4] (ii) Find the process that is followed by the variable ts. Does ts also follow a geometric Brownian motion? [6] -000

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