Question: to solve it,step by step. 3. Suppose S(t), t 2 0 satisfies the following equation ds(t) = uS(t) dt + oS(t) dw(t) where u and

to solve it,step by step. 3. Suppose S(t), t 2 0

to solve it,step by step.

3. Suppose S(t), t 2 0 satisfies the following equation ds(t) = uS(t) dt + oS(t) dw(t) where u and o are two constants and W(t), t > 0 is a standard Brownian motion. Consider G(t) := 1/S(t), t20. (a) Use Ito lemma to find the process that governs G(t), t 2 0, i.c., to find dG(t). (6pt) (b) Suppose S(0) = 50, A = 10%, and o = 20%. Find the expected value of 1/S(2). (4pt)

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