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regression
For the regression casey=alpha + beta*x +sigma*sqrt(dt)*Zwould i need a 0.5*sigma^2*dt term in the equation as well?y=alpha' + beta*x - 0.5*sigma^2*dt +sigma*sqrt(dt)*Zthanks
regression
the reason i am asking this question is because I think in a regular case the 0.5*sigma^2*dt maybe captured in the alpha but if you try and model the volatility as a stochastic variable then this term should be included explicitly.Any comments?