Define stochastic differential equation with an expression

Define the stochastic differential equation with an expression?

E

Expert

##### Verified

Let us assume that we have a random variable y evolving as per to a rather general, a factor stochastic differential equation

dy = A(y, t) dt + B(y, t) dX.

There A and B are arbitrary functions both of y and t. Several common models can be written in such form, as well as the lognormal asset random walk and common spot interest rate models.

#### Related Questions in Financial Management

• ##### Q :Define possible ways of marking

What are possible ways of marking exotic or over-the-counter contracts?

• ##### Q :Usefulness of inspecting countrys

Why would it be useful to inspect a country's balance of payments data?
It would be useful to inspect a country's BOP for at least two reasons. Firstly, BOP provides detailed information regarding the supply & demand of the country's currency

• ##### Q :Categorize the issues of Knight

Categorize the issues of Knight.

• ##### Q :When we can use Monte Carlo numerical

When we can use Monte Carlo numerical method?

• ##### Q :How is Crash Metrics deal How is Crash

How is Crash Metrics deal?

• ##### Q :Define an example of a Quant and an

Define an example of a Quant and an Actuary.

• ##### Q :Main motive behind the experience

Explain the main motive behind the experience approach to forecasting?

• ##### Q :Miller and Modigliani theory of

What is the Miller and Modigliani theory of dividends?

• ##### Q :Advantages of collecting early What are

What are the advantages of “collecting early” and how do companies try to do this?

• ##### Q :Which numerical method should you use

You need to price a fixed-income contract by using the BGM model. Which numerical method should you use?