Perhaps I should give a “trigger” warning about tomorrow’s meeting of Finance 4366. Since we’ll be covering the topic of Ito’s Lemma, it will be a bit on the “mathy” side. We will introduce Ito’s Lemma and use it to accomplish the following tasks: 1) derive the parameters of the probability distribution for continuously compounded rates of return, and 2) determine the stochastic process for forward contracts. In a nutshell, my goal is to prepare you for successfully working Problem Set 8 (due at the beginning of class on Tuesday, October 31). Our class meeting tomorrow will begin with a quiz based upon the assigned readings.
Next Thursday, Finance 4366 will not meet because of the Presidential Inauguration. We’ll devote Tuesday, 10/31 to a review session for the second midterm exam, and then y’all will take the 2nd midterm exam during class on Thursday, 11/3.