Continuous Time - Discretization Examples

# Continuous Time - Discretization Examples - 1 Temple...

This preview shows pages 1–8. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Temple University Continuous Time Finance Discretization of Ito Process 2 Discretization of Ito Process Continuous Time Models 3 Formula for Ito Process ) )( , ( ) , ( ) , ( ) , ( (t)dW (t)dt (s)ds (s)dW(s) X(0) X(t) 2 2 1 t t t t t xx t t x t t t t dX X t f dX X t f dt X t f X t df dX + + = + = + + = Stochastic Calculus (in Finance) is little more than repeated use of this formula 4 Continuous Time Finance Discretization of Ito Process Discretization concerns the process of transferring continuous models and equations into discrete counterparts. This process is first step toward making them suitable for numerical evaluation. 5 Discretization of Ito Process Drift Coefficient 6 Discretized Stock Process t t S t S t t S dt t S t dS e S t S t + = + = = ) ( ) ( ) ( ) ( ) ( ) ( ) ( 7 Discretized Stock Process t t e t S t t S t t S t t S dt t S d t S t S dt t S t dS e S t S = + + = + = + = = = ) ( ) ( ) ( ln ) ( ln ) ( ln ) ( ln ) ( ln ) ( ) ( ) ( ) (...
View Full Document

## This note was uploaded on 11/23/2009 for the course FIN 5190 taught by Professor Soss during the Fall '09 term at Temple.

### Page1 / 22

Continuous Time - Discretization Examples - 1 Temple...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online