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Strong Taylor Schemes for Stochastic Volatility

Ito-Stratonovich drift conversion

The Stratonovich SDE:

f or i = 1, ..., N ; j = 1, ..., M

with the same solutions as the N-dimensional Ito SDE with an M-dimensional Wiener process:

has a drift coefficient that is defined given a component-wise by:

(7)

whereas a given a is defined component-wise by:

(8)

These are called the drift correction formulas. Note that the diffusion coef-
ficients are the same in both the Ito and Stratonovich SDEs.

Prof. Klaus Schmitz

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