Itô's Lemma: Vanilla Case

State Itô's Lemma (general form) in differential form.

Answer

Let $X_t$ be an Itô process of the form

\[ dX_t = \mu(X_t,t)\,dt + \sigma(X_t,t)\,dB_t. \]

and let $f:\mathbb{R}\times[0,\infty)\to\mathbb{R}$ be twice continuously differentiable in $x$ and once in $t$.

Then Itô's Lemma (differential form) states:

\[ df(X_t,t) = \Big(f_t + \mu f_x + \tfrac{1}{2}\sigma^2 f_{xx}\Big)\,dt + \sigma f_x\, dB_t. \]
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