Let Wt be aWiener process. Consider the geometric process St again: St = S0e(1/2 2)t+Wt (a) Calculate
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St = S0e(μ−1/2 σ2)t+σWt
(a) Calculate dSt.
(b) What is the "expected rate of change" of St?
(c) If the exponential term in the definition of St did not contain the term, what would be the dSt? What would then be the expected change in St?
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For Geometric Brownian motion we have S t S 0 e12 2Wt ...View the full answer
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Related Book For
An Introduction to the Mathematics of Financial Derivatives
ISBN: 978-0123846822
3rd edition
Authors: Ali Hirsa, Salih N. Neftci
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