《《ITO LEMMA》.pdfVIP

Chapter 2 Ito’s Lemma 2.1 Ito’s Lemma Ito’s lemma is the chain rule for stochastic calculus. In this chapter we present Ito’s lemma for Brownian motion and Poisson processes. It has been said that all of math finance can be done with just the knowledge of Ito’s lemma. To you, this means that you should make sure that you know (and understand Ito’s lemma). In what follows, we will present versions of Ito’s lemma for Brownian motion and Poisson processes. 2.1.1 The chain rule of ordinary calculus In ordinary calculus, here is how the chain rule works in conjun