Exercise 20.1.2 Assume that the stock price follows Eq. (20.1). The simple rate of return is defined

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Exercise 20.1.2 Assume that the stock price follows Eq. (20.1). The simple rate of return is defined as [ S(t)− S(0) ]/S(0). Suppose that the volatility of the stock is that of simple rates of return, σs, instead of the instantaneous rates of return, σ.

Express σ in terms of σs, the horizon t, and the expected simple rate of return at the horizon, μs.

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