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Investment / Financial Markets Old Exam MFE Forum 

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#1




Ito's Lemma general question
I wonder how is (dS)^2, which is the middle term, calculated.
For example, ASM page 279 14G, 2nd last line, how does (dZ)^2 become dt? Thanks in advance! 
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Also for Quiz 146, the solution shows (dY)^2 = 0.4^2dt? Please help. Thanks 
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Then you use the multiplication table that Actiger gave to change that to As for why the multiplication table is what it is... that's a little (or a lot) complicated, and of no use whatsoever in understanding the material. You just need to know the multiplication table that Actiger provided.
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The Poisson distribution wasn't named after a fish  it was named after a man ... who was named after a fish. 
#5




thanks a lot jraven, I guess I will just memorize the multiplication table, and it is good to go.

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random variables, and to manipulate them with calculus and see what there doing instantaneously, some bright boys had to come up with some new axioms to deal with these strange objects. I actually read a very theoretical book on the subject and it was kind of interesting but did nothing to help with the exam. 
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Yes there is. Quote:
No such bridge exists.
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Looking to go 2 for 2: Corporate Finance VEE: Check MFE: Passed. In your face Vorian Atreides! 
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There are plenty of books on theory of this stuff. I was also annoyed that I had to take these multiplication rules and itos Lemma as is with no explanation of why. I spent a few days digging in a very theoretical book and saw why stochastic random variables model stock behavior well and as for stochastic calculus it was increadibly abstract and strange. Overall it was a waste of study time, and I'm guessing thats why they don't go into this stuff. I've realized you can't be an applied mathematician and also fully understand the theoretical aspects behind everything without getting 3 hours of sleep and having 0 social life. Theoretical mathematicians develoup the tools and Applied mathematicians use them to solve complicated problems in the real world. 
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"One must do no violence to nature, nor model it in conformity to any blindly formed chimera." Janos Bolyai "Theoria cum praxis." Gottfried von Leibniz 
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