| The study of stochastic processes has led to fruitful applications in a wide variety of disciplines. This work is devoted to a survey of this mathematical area with particular interest in applications to problems in finance. Our survey begins with a presentation of the fundamental results of stochastic calculus, which will be used in the later chapters. We then present expositions of two applications of this theory to finance. First, the Black-Sholes-Merton formula for option pricing will be derived. Second, the optimal stopping problem for a stock will be examined. |
