Option Pricing Models Are Based on Ito Processes $Y _ { t }$

question 8

Multiple Choice

Option pricing models are based on Ito processes.Which of the following statements best describes Ito processes? Ito processes $Y _ { t }$ are

• A)A special case of Wiener processes \(W _ { t }\)
• )
• B)Are functions of Wiener processes: in SDE form, \(d Y ( t ) = a d t + b d W ( t )\)
• )
• C)Are functions of Wiener processes: in SDE form, \(d Y ( t ) = a d t + b d W ( t )\)
• ,with the restriction that
• \(\alpha\)
• And
• \(b\)
• Have to be constants.
• D)Are functions of Wiener processes: in SDE form, \(d Y ( t ) = a d t + b d W ( t )\)
• ,with the restriction that
• \(\alpha\)
• And
• \(b\)
• Have to be constants or functions of time
• \(t\)
• Alone.

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Definitions:

Uniform Commercial Code

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A principle in commercial law that requires goods delivered under a sales contract to exactly meet the terms of the contract in quality, quantity, and manner of delivery.

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