ito’s lemma
Itō’s Insight
Consider the stochastic process where is standard Brownian motion (or the Wiener process) and is a twice-differentiable function. Ito’s lemma states that The first term is recognizable from the chain rule in classical calculus, but why the second term? If is truly infinitesimal, it doesn’t even seem possible that . To understand Ito’s lemma intuitively, […]