1932

Abstract

Stochastic processes arising in the description of the risk-neutral evolution of equity prices are reviewed. Starting with Brownian motion, I review extensions to Lévy and Sato processes. These processes have independent increments; the former are homogeneous in time, whereas the latter are inhomogeneous. One-dimensional Markov processes such as local volatility and local Lévy are discussed next. Finally, I take up two forms of stochastic volatility that are due to either space scaling or time changing. An encompassing discrete-time model closes the presentation.

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/content/journals/10.1146/annurev.financial.050808.114506
2010-12-05
2024-06-15
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/content/journals/10.1146/annurev.financial.050808.114506
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  • Article Type: Review Article
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