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jzadeh
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My Stochastic calculus professor always used to say "When in doubt use Ito!"

So let $f(t,x) = t x $ and compute $\partial_t f(t,x) = x$, $\partial_x f(t,x) = x $ and $ \partial_{xx} f(t,x) = 0$

Now the Ito lemma says for $f$ twice differentiable with respect to $x$ and once differentiable with respect to $t$ then the following formula holds for any Ito process:

$f(t, X_t) = f(0,X_0) + \int_{0}^{t}\partial_s f(s,X_s) ds + \int_{0}^{t}\partial_x f(s,X_s) dX_s$ $+ \int_{0}^{t}\partial_{xx} f(s,X_s) d \left< X,X \right>_s $

So applying the above fact to the function $f(t,x) = tx$ gives:

$t X_t = 0 + \int_{0}^{t}X_s ds + \int_{0}^{t} s dX_s + 0$ or $\int_{0}^{t}X_s ds = t X_t - \int_{0}^{t} s dX_s$

So in words we have that The (Riemann) integral of an ito process is equal to the difference of two gaussian processes.

For example one can compute the variance of X

jzadeh
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