Generalised Ito s formula

It is possible to generalise Ito s formula in order to produce a multi-dimensional formula, which can then be used to construct a model to price interest-rate derivatives or other asset-class options where there is more than one variable. To do this, we generahse the formula to apply to situations where the d5mamic function/() is dependent on more than one Ito process, each expressed as a standard Brownian motion. [Pg.28]

Where the function/() contains second-order partial derivatives with respect to X and first-order partial derivatives with respect to t, which are a continuous function in (x, t), the generalised Ito s formula is given by... [Pg.28]

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