Consider a stock with an initial price s0 50 drift rate, Ask an Expert

Finance

Consider a stock with an initial price S0 = 50, drift rate µ = .08 and volatility σ = .4. Let ?t = 1/12 (one month) and let T = 1.

(a) Flip a coin 12 times to generate a random sequence of 1’s and −1’s.

(b) Use our incremental Black-Scholes model to generate a possible sequence of stock prices for this stock over the course of a year.

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Financial Management, Finance

Category:- Financial Management
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