Black-scholes model to generate possible sequence of stock

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Reference no: EM131608160

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.

Reference no: EM131608160

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