Ito's Lemma

Ito's Lemma is a fundamental theorem in stochastic calculus, used primarily in finance and mathematical modeling. It offers a way to determine how a function of a random variable changes over time, especially when that variable follows a random process, like stock prices. Essentially, it helps in calculating the changes in quantities that are influenced by uncertainty and randomness. By applying Ito's Lemma, one can derive important relationships and predict behaviors in various fields, including economics, engineering, and physics, where randomness plays a critical role in dynamics.