Easy question on stochastic process

In summary, a stochastic process is a mathematical model used to describe the evolution of a system over time, taking into account random factors and uncertainty. It is different from a deterministic process, which is solely based on initial conditions. Stochastic processes have various real-world applications, including in finance, economics, biology, physics, and engineering. There are different types of stochastic processes, such as discrete-time and continuous-time processes, each with its own characteristics and applications. They are also used in data analysis and modeling to understand and predict the behavior of complex systems.
  • #1
grossgermany
53
0
Suppose that A and B follow geometric brownian motion, where zA, and zB follow wiener process
dA/A=a*dt+b*dzA
dB/B=c*dt+d*dzB
dzA*dzB=e*dt
What stochastic process does A/B follow?

This is not a homework question(I am sure it's almost trivially easy to those who learned the stuff). I am very new to the stuff and would anyone be kind enough to show me the result and derivation?

I have browsed through textbooks yet none of them have a similar example.
 
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  • #2
Try looking up Ito's Formula.
 

Related to Easy question on stochastic process

1. What is a stochastic process?

A stochastic process is a mathematical model used to describe the evolution of a system over time. It is a collection of random variables indexed by time, which can be used to make predictions about the future behavior of a system.

2. How is a stochastic process different from a deterministic process?

A deterministic process is one where the future behavior of the system is completely determined by its initial conditions. In contrast, a stochastic process takes into account random factors and uncertainty, making predictions about the future behavior of the system more probabilistic.

3. What are some real-world applications of stochastic processes?

Stochastic processes have many applications in fields such as finance, economics, biology, physics, and engineering. Some examples include stock market fluctuations, population growth, radioactive decay, and signal processing.

4. What are the main types of stochastic processes?

There are several types of stochastic processes, including discrete-time and continuous-time processes. Other common types include Markov processes, Brownian motion, and Poisson processes. Each type has its own specific characteristics and applications.

5. How are stochastic processes used in data analysis and modeling?

Stochastic processes are used in data analysis and modeling to understand and predict the behavior of complex systems. By using mathematical models and statistical techniques, stochastic processes can help make sense of large sets of data and make predictions about future trends and patterns.

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