Showing posts from September, 2018

What exactly is Brownian Motion

Today we will talk about Brownian Motion, More than 60% of CT8 syllabus moves around Brownian Motion.
What is stochastic process: Stochastic process is a sequence of some quantity where the future values cannot be predicted with certainty.

Brownian Motion:
Definition: It is a stochastic process with a continuous state space and in continuous time. This process has stationary, independent and normally distributed increments.
Understanding: Here in CT8 we are going to model the share prices that is we are looking at how can we make share prices models so that we can predict our future returns on the basis of risk level decided by investor and then invest accordingly. Brownian motion is one of the tool with the help of which we can do this. Standard Brownian Motion has normal distribution which means it follows normal with mean “0” and Variance “t” at time t. Under the General Brownian, it also follows the normal distribution with mean “u” and variance “σ2” but these mean and variance are link…