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seen Feb 5 '13 at 23:46

Jan
28
comment Simulation of GBM
Thanks a lot! That was very helpful!
Jan
28
comment Simulation of GBM
Thank's for pointing out the typos and sorry about that. I follow your point, just one question: Why does the time dependent part in the stochastic element drop out? should sigma Z_j not be dependent on the time step?
Jan
28
comment Simulation of GBM
That makes sense, thanks a lot (and sorry about the typos). So, do I understand correctly then that the discrete form is usually an approximation and used if there is no closed form (i.e., no exact analytical solution)? And by approaching the limit of 0 with my timestep, I can overcome the problem (somehwat) of an approximation error?