The process for the stock price in equation (14.8) is where and are constant. Explain
Question:
The process for the stock price in equation (14.8) is
where μ and σ are constant. Explain carefully the difference between this model and each of the following:
Why is the model in equation (14.8) a more appropriate model of stock price behavior than any of these three alternatives?
Transcribed Image Text:
AS = µSAt+ oSɛ VAt AS μ Δ + σε /Δr AS-μS Δt+ σε /Δt AS-μ Δ+ σSε VΔt ΕιΕι
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