medium · Quantitative Finance stochastic
In the discrete version of Brownian motion (a random walk), the step size is ± √(Δ t).
What is the square of this step, and how does it relate to the Itô table?
- dW; it remains a genuinely stochastic random variable
- Δ t; it is the discrete analogue of (dW)² = dt
- Δ t²; it represents a negligible higher-order term
- 0; it implies each step size is negligible
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