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Second moment of a GBM at time two

Question

A geometric Brownian motion SS starts at S0=1S_0=1 and has drift μ=1\mu=1 and volatility σ=1\sigma=1, i.e. dSt=St(dt+dWt)dS_t=S_t(dt+dW_t). Writing E[S22]=ek\mathbb{E}[S_2^2]=e^k, determine kk.

Short answer

k=6k=6. By Ito, d(St2)=St2(3 dt+2 dWt)d(S_t^2)=S_t^2(3\,dt+2\,dW_t), so S2S^2 is itself a GBM with drift 33. Hence E[St2]=e3t\mathbb{E}[S_t^2]=e^{3t} and at t=2t=2 this is e6e^6. (Equivalently E[St2]=e(2μ+σ2)t\mathbb{E}[S_t^2]=e^{(2\mu+\sigma^2)t}.)

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