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Geometric Brownian Motion as the limit of a Binomial Tree?

First, the factors $u$ and $d$ in the binomial tree are given by $$ u=e^{\sigma\sqrt{\Delta t}},d=e^{-\sigma\sqrt{\Delta t}}. $$ Using the Taylor expansion till terms of order $\Delta t$ gives for ...
Knabe's user avatar
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5 votes

Geometric Brownian Motion as the limit of a Binomial Tree?

We can show that the moments of the Binomial tree agree with the moments of the continuous model for the case where we pick symmetrical probability value $p=0.5$. I will change the notation slightly (...
Jan Stuller's user avatar
  • 6,178

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