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Itō calculus
From Wikipedia, the free encyclopedia.

Itō calculus, named after Kiyoshi Itō, treats mathematical operations on stochastic processes. Its most important concept
is the Itô stochastic integral.

Before starting, it is important to note that:

Capitalized letters such as X denote random variables.

Capitalized letters with a subscript t such as Bt denote a stochastic process which is a set of random variables
indexed by t.

A small letter d to the left of a random process e.g. dBt means an infinitesimal change in the random process which
is a random variable.

The stochastic integral of a process Xt with respect to a process Bt is denoted by

and is defined as the limit in probability of corresponding sums of the form

A crucial fact about this integral is Itō's lemma.

Both summation and multiplication of random variables are defined in probability theory. The summation involves a
convolution of the probability density function (pdf) and multiplication is repeated summation.

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Categories: Stochastic processes | Equations

This page was last modified 22:20, 21 July 2005.

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details).

1 of 1 9/10/2005 8:41 PM