6. Continuous-Time Models and Their Applications
6.1 Options, 222
6.2 Some Continuous-Time Stochastic Processes, 222
6.3 Ito’s Lemma, 226
6.4 Distributions of Stock Prices and Log Returns, 231
6.5 Derivation of Black–Scholes Differential Equation, 232

6.6 Black–Scholes Pricing Formulas, 234
6.7 An Extension of Ito’s Lemma, 240
6.8 Stochastic Integral, 242
6.9 Jump Diffusion Models, 244
6.10 Estimation of Continuous-Time Models, 251