Open AccessThe impact of Kiyoshi Ito´s stochastic calculus of financial economics
Author(s) -
Diego Iván Ruge-Leiva
Publication year - 2016
Publication title -
odeon/odeón
Language(s) - English
Resource type - Journals
eISSN - 2346-2140
pISSN - 1794-1113
DOI - 10.18601/17941113.n10.07
Subject(s) - mathematical economics , stochastic calculus , economics , valuation of options , arbitrage , relevance (law) , work (physics) , financial economics , mathematics , physics , mathematical analysis , stochastic partial differential equation , political science , law , thermodynamics , differential equation
We discuss the direct or indirect incorporation into financial economics of Kiyoshi Itô´s work on stochastic calculus, particularly the Itô formula, the relevance of his findings for option pricing theory and the way his work has been used to find a unique option pricing function in a competitive and non-arbitrage market. On that basis, we discuss how the option pricing theory may be linked with the general equilibrium theory and other aspects of conventional economics, and finally, Itô’s role in econophysics.