Question: A stock price has an expected return 12% per year and volatility of 25% per year. Currently the stock price is $40. Assume 252 days

A stock price has an expected return 12% per year and volatility of 25% per year. Currently the stock price is $40. Assume 252 days per year.

a) Write the equation for a log-normal stock dynamics.
b) Then write the equation for the change in stock price.
c) Then find the standard deviation of the stock price at the end of one day?
d) Suppose there is excess kurtosis of 10. What would you assume about the standard deviation?

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a The equation for a lognormal stock dynamics is given by St S0 expr 05 sigma2 t sigma sqrtt Zwhere ... View full answer

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