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How do I convert an equation of the form Ito's Lemma to the Black-Scholes form?
I have this equation dV = 6S^2(V/S)dw + (5*V/S + v/t + 18*S^4 ^2V/S^2)dt
What are the steps with this Ito's Lemma equation to find the corresponding Black Scholes
Equation?
Does the conversion always lead to the same Black-Scholes form of:
V/t + 1/2(^2*S^2) ^2/S^2 + rS*V/S - rV = 0
Thank you.

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How do I convert an equation of the form Ito's Lemma to the Black-Scho.docx

  • 1. How do I convert an equation of the form Ito's Lemma to the Black-Scholes form? I have this equation dV = 6S^2(V/S)dw + (5*V/S + v/t + 18*S^4 ^2V/S^2)dt What are the steps with this Ito's Lemma equation to find the corresponding Black Scholes Equation? Does the conversion always lead to the same Black-Scholes form of: V/t + 1/2(^2*S^2) ^2/S^2 + rS*V/S - rV = 0 Thank you.