The Itô integral defines an integral of a stochastic process with respect to a standard Brownian motion. The Itô integral is more general than the Wiener integral introduced in the previous chapter. In this chapter, we shall introduce the concept of Itô integrals.

32.1 Basic Concepts and Facts

Definition 32.1 (Stochastic Process Space L2ad([a, b] × Ω)). Let be a filtration under consideration. The space L2ad([a, b] × Ω) is defined to be the space of all stochastic processes f(t, ω), t [a, b], ω Ω, satisfying the following conditions:

(a) f(t) is adapted to the t.
(b) ba E(|f(t)|2)dt < ∞.

Definition 32.2 (Itô Integral of Step Stochastic Processes). Let {t : atb} be a filtration. Let {Bt : atb} be a Brownian motion satisfying the following conditions:

(a) For each t, Bt is t-measurable.
(b) For any st, the random variable BtBs is independent ...

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