I have a question of applying Ito's Lemma in the following problem,
Assume both X and Y follow the Geometric Brownian Motion, how to use Ito's Lemma to get the process of X/(X+Y)?
Thank you very much for your time and help!
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Welcome to MSE. Please read this text about how to ask a good question. – José Carlos Santos Sep 14 '19 at 22:23
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Thank you for this information. – merryn Sep 15 '19 at 01:10
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You need to apply the Ito's Lemma to the function $f(x,y) = \frac{x}{x+y}$ along with the process $X_t$ and $Y_t$. I suppose that you know the dynamics of $X_t$ and $Y_t$. – Sesame Sep 16 '19 at 15:54
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Thank you so much! I have figured it out now. As you pointed out, I should take it as a multivariate function. Best – merryn Sep 20 '19 at 22:54