From the course: Modeling Market Prices Using Stochastic Processes with Wolfram Language

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Ito process

Ito process - Wolfram Language Tutorial

From the course: Modeling Market Prices Using Stochastic Processes with Wolfram Language

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Ito process

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Now these are stochastic processes. Stochastic processes or the stochastic calculus is an extension of normal calculus. So for those of you who didn't do lots of maths, you most probably thought that was terrible enough. But now there's this, which is an extension. So this part you will recognize. Okay. It says this gives us how the process is changing with respect to time. But remember, it has noise or error and this noise or error doesn't disappear. This is one of the understandings of Chaos Theory. It is folded back into the process as it evolves. In a way, we already knew this when we studied partial differential equations. One of the methods for solving a partial differential equation, and in the same way a stochastic differential equation is to build a frame, to build a mesh, and the whole thing expands out like, you know, a crisscrossed triangle as you move through time. So you need a component which grows with the noise, okay? So this is the differential of the underlying…

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