Assuming trend and volatility of stock price

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Reference no: EM132020671

Assuming the trend and volatility of stock price S are proportional to the current value of S, which of the following you will use to describe the stock price dynamics:

(a) the Wiener process,

(b) the generalized Wiener process,

(d) the geometric Brownian motion (GBM)?

Carefully explain all relevant concepts and your choice. Formulate a process for the 1-week change of the price of a stock that pays no dividends, has an expected return of10 % per annum, volatility of 20% per annum, and is currently priced at £100.

Reference no: EM132020671

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