Mathematics, Stochastic Modelling, Quantitative Finance, Finance, Probability.
in the context of stochastic processes, the term (dW)² is replaced with dt. This leads to the proper formulation of Itô’s Lemma: Itô’s Lemma Itô’s Lemma formalizes this approach and ensures that we correctly handle the stochastic nature of Wt​. The lemma states: For a function 𝐹(𝑡,𝑊𝑡), if 𝐹 does