Understanding Stochastic Calculus

Stochastic calculus involves dealing with collections of potential functions and their probability distributions rather than determining a single function. This approach is critical in modeling unpredictable phenomena, such as stock price movements, where outcomes are uncertain. By considering all possible paths of Brownian motion, it enables experts to derive average outcomes, such as the expected time for a stock to surpass a particular value. This probabilistic framework allows for more nuanced predictions that reflect the unpredictability of real-world scenarios.