See Lesson 05 about the discrete-time S_i+1 concept.

See Lesson 15 about TVRV.

I feel in general any variable dependent on a random variable is also a random variable, such as the S in

S_i+1 - S_i = deltaS = a * deltaT + b * deltaW

The dependency is signified by the ordinary-looking "+" operator. To me this addition operator means "superimpose". The deltaS or stepsize is a combination of deterministic shift superimposed on a non-deterministic noise. That makes S itself a time-varying random variable which can follow a trillion possible paths from last-observation to Expiry.

The addition doesn't mean the stepsize_i+1 will be known once both components i.e. (a * deltaT) and (b * deltaW) are known. In fact, deltaW can take a trillion possible values, so the stepsize in S is not exactly predictable i.e. non-deterministic. This stepsize is random. Therefore S itself is a TVRV.

## Monday, September 2, 2013

### Stoch Lesson 22 any thingy dependent on a TVRV is likely a TVRV

Labels: fMathStoch

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