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Every practitioner knows there are serious flaws with relying on the basic Black-Scholes model. If you look at the distribution as a part of the solution then you have to throw the baby out with the bath water and all of that Black-Scholes stuff is worthless. If you look at the distribution of asset prices as one of the assumptions then you have a lot of ...


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I think Matt Wolf had the best answer by far, but the only point I would add is that the normal distribution can actually be a bit of a dangerous assumption at times, I actually believe this is the reason that more emphasis has been placed on risk management (especially recently) as opposed to pricing models. The main reason for GBM is that it creates ...


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Number one, the central limit theorem means a lot of things that may not be normal end up looking normal when lots of little 'experiments' or impacts are added up. Number 2, when dealing with finance you need a model that seems plausible. An arithmetic Brownian motion could go negative, but stock prices can't. On the other hand, it seems quite plausible ...


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Visual Studio for sure. You can download the Express version for free, which is all you need if you're just practicing/brushing up. If you're a student (or still have access to your student email), you can download the Professional version for free from MS DreamSpark.



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