he previous section hints that we are going to work with ratios of stochastic
processes. We will repeatedly perform the
(
Ito_formula
)-based evaluation
of
and
Hence,
|
|
(Useful formula)
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Suppose the stochastic processes
and
are given by the
SDEs
where the
and
are columns. In terms of the SDE's coefficients we
obtain
Note, if
is a Brownian motion in a
-numeraire
measure then the above drift is zero
and
It is informative to compare the last relationship with the
(
Market prices of risk
).
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