- Joined
- 6/11/10
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If the drift of a Brownian motion is constant, Radon-Nikodym derivative could be applied to Girsanov transform the drift to zero, or from zero to a constant.
This is no doubt.
However, I doubt if it can also be applied to a stochastic drift, say, a mean-reverting stochastic drift.
Just like Sum(b*dW)=bW but Sum(WdW)\=W*W
and Sum( VdW)\=V*W where V is another Brownian Motion indepedent of W.
I doubt if Girsanov transformation can be applied to stochastic drift or interest rate.
This is no doubt.
However, I doubt if it can also be applied to a stochastic drift, say, a mean-reverting stochastic drift.
Just like Sum(b*dW)=bW but Sum(WdW)\=W*W
and Sum( VdW)\=V*W where V is another Brownian Motion indepedent of W.
I doubt if Girsanov transformation can be applied to stochastic drift or interest rate.