Given the GBM the Euler scheme yields The resulting discretized process is An obvious issue with this

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Given the GBM

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the Euler scheme yields

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The resulting discretized process is

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An obvious issue with this discretization is that it generates the wrong distribution. GBM is supposed to generate lognormal variables, but here we are generating normal (possibly negative) random variables.

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An Introduction To Financial Markets A Quantitative Approach

ISBN: 9781118014776

1st Edition

Authors: Paolo Brandimarte

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Question Posted: Apr 03, 2024 03:00 AM

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Given the GBM the Euler scheme yields The resulting discretized process is An obvious issue with this

Question:

= dStS dt +S dWt,

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An Introduction To Financial Markets A Quantitative Approach

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