Stochastic calculusStochastic calculus
is a branch of mathematics
that provides the formal framework and quantitative tools needed for modelling stochastic processes
, which are specified through one or more integral and/or differential equations
involving both deterministic and random (i.e. stochastic) variables. The classical example of an stochastic process is the so called Brownian motion
, originally developed by Albert Einstein
to model the diffusion in space of particles subject to random forces. Later, the concept has been widely applied in financial mathematics
to model the evolution in time of stock and bond prices.