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  3. 3 consider the exponential random walk model for two stocks...

Question: 3 consider the exponential random walk model for two stocks...

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3. Consider the exponential random walk model for two stocks S and S. Assume that So So Assume that both have Gaussian increments and that they have the same growth rate and volatility; i.e. Also, assume that the size of the time steps At and At are related by the equation, At2At have the same probability density function. Let n 2n and show that Sn and S Remark: The fact that this is true is important for us because it will allow us to show that the distribution one gets for a process with given μ and σ is independent of the frequency of our observations. This is a crucial observation in our subsequent goal to make our models continuous in time.

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