Explain the concept of stochastic calculus and how it is used in financial modeling.

Stochastic Calculus: Fundamentals and Financial Applications Stochastic calculus is a mathematical framework that deals with random processes, i.e., processes whose outcomes are uncertain. It provides tools for modeling and analyzing phenomena involving uncertainty, such as financial markets. Key Concepts: Brownian Motion: A random process that describes the erratic movements of a particle in a fluid. Itô Calculus: A set of rules that allow for the integration and differentiation of stochastic processes. Stochastic Differential Equations (SDEs): Equations that describe the evolution of a stochastic process in continuous time. Applications in Financial Modelin....