Question

1. Consider the stochastic differential equation (SDE):

dSt = St(pdt + odW₁), So = S,

where and are constant drift and volatility, respectively, and {W}tzo denotes

standard Brownian motion. Find the SDE (dY) for the following quantities.

(a) Y₁ = In W₁.

(b) Y₁ = √St.

Question image 1