hard · Quantitative Finance Probability, Statistics & Linear Algebra

A stock price follows geometric Brownian motion dS_t=μ S_t,dt+σ S_t,dW_t with μ=10% and σ=20% per annum.

Applying Itô's lemma to f(S_t)=S_t^4, what is the instantaneous drift rate of S_t^4 — the coefficient of dt in d(S_t^4) divided by S_t^4?

40%
56%
64%
80%

Sign up free to see the explanation and track your rank →

More Quantitative Finance Probability, Statistics & Linear Algebra practice

By the Feynman–Kac theorem, V(S,t)=e^-r(T-t)E[payoff(S_T)mid S_t=S], where the expectation

KomFi Academy

Stop doomscrolling. Get KomFi. Build your intelligence, anytime, anywhere.

KomFi Academy requires JavaScript to run. Please enable JavaScript in your browser, or visit on a modern browser (Chrome, Safari, Firefox, Edge).

Questions? Email komfiacademy@gmail.com.