Recall that if \(u(t)\) and \(v(t)\) are deterministic functions which are once differentiable then the classic integration by parts formula states that
\[ \int_0^t u(s) (\frac{dv}{ds})(s)\,ds = u(t)v(t) – u(0)v(0) – \int_0^t v(s) (\frac{du}{ds})(s)\,ds\]
As is suggested by the formal relations
\[ (\frac{dv}{ds})(s)\,ds=dv(s) \qquad\text{and}\qquad (\frac{du}{ds})(s)\, ds=du(s)\]
this can be rearranged to state
\[ u(t)v(t)- u(0)v(0)= \int_0^t u(s) dv(s) + \int_0^t v(s) du(s)\]
which holds for more general Riemann–Stieltjes integrals. Now consider two Ito processes \(X_t\) and \(Y_t\) given by
\[dX_t=b_s ds + \sigma_s dW_t \qquad\text{and}\qquad dY_t=f_s ds + g_s dW_t \]
where \(W_t\) is a standard Brownian Motion. Derive the “Integration by Parts formula” for Ito calculus by applying Ito’s formula to \(X_tY_t\). Compare this the the classical formula given above.
