Beruflich Dokumente
Kultur Dokumente
c c
A c = A
A c = A
is n correlatio where on distributi
normal standard bivariate a from
samples random are and where
2 1
2 2
1 1
t z
t z
Options, Futures, and Other Derivatives, 8th Edition,
Copyright John C. Hull 2012
26
Its Lemma (See pages 291)
If we know the stochastic process
followed by x, Its lemma tells us the
stochastic process followed by some
function G (x, t )
Since a derivative is a function of the
price of the underlying asset and time,
Its lemma plays an important part in
the analysis of derivatives
Taylor Series Expansion
A Taylors series expansion of G(x, t)
gives
Options, Futures, and Other Derivatives, 8th Edition,
Copyright John C. Hull 2012
27
+ A
c
c
+ A A
c c
c
+
A
c
c
+ A
c
c
+ A
c
c
= A
2
2
2 2
2
2
2
t
t
G
t x
t x
G
x
x
G
t
t
G
x
x
G
G
\
|
c
c
+
c
c
+
c
c
=
+ =
c
c
+
c
c
+
c
c
=
2
2
2
2
2
2
Application of Itos Lemma
to a Stock Price Process
Options, Futures, and Other Derivatives, 8th Edition,
Copyright John C. Hull 2012
32
dz S
S
G
dt S
S
G
t
G
S
S
G
dG
t S G
z d S dt S S d
and of function a For
is process price stock The
o
c
c
+
|
|
.
|
\
|
o
c
c
+
c
c
+
c
c
=
o + =
2 2
2
2
Examples
Options, Futures, and Other Derivatives, 8th Edition,
Copyright John C. Hull 2012
33
dz dt dG
S G
dz G dt G r dG
e S G
T
t T r
2
price stock a of log The 2.
time at maturing
contract a for stock a of price forward The 1.
2
o +
|
|
.
|
\
|
o
=
=
o + =
=
ln
) (
) (