Question: The process for the stock price in equation (14.8) is where and are constant. Explain carefully the difference between this model and each

The process for the stock price in equation (14.8) is AS = µSAt+ oSɛ VAt


where μ and σ are constant. Explain carefully the difference between this model and each of the following: AS μ Δ + σε /Δr AS-μS Δt+ σε /Δt AS-μ Δ+ σSε VΔt ΕιΕι


Why is the model in equation (14.8) a more appropriate model of stock price behavior than any of these three alternatives?

AS = SAt+ oS VAt AS + /r AS-S t+ /t AS- + S Vt

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