Same question as in Problem 3 but assume prices follow GBM with the same parameters. Compare the
Question:
Same question as in Problem 3 but assume prices follow GBM with the same parameters. Compare the less than 10 values.
Data from in problem 3
(a) Suppose Brownian motion is used to model stock prices (instead of geometric Brownian motion). If S0 = 10, μ = 0 per year, volatility = 1 per square root year, and T = 1/12 years (about 30 days), what is the probability a stock’s price ST will be less than 0? less than 1? less than 9? less than 10?
(b) What is the probability the price went below 0 at some time before t = T and ended above 0? Estimate this by simulation using several difference choices for Δt.
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