Explain an example of Brownian motion effects
Explain an example of Brownian motion effects.
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For illustration, in option pricing Brownian motion effects in simple closed-form formula for the prices of vanilla options. This can be used as a building block for random walks along with characteristics beyond those of Brownian motion itself.
Explain Capital Asset Pricing Model (CPM).
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You need to price an option that is paid for within instalments, and you can stop paying and lose the option. Which numerical method should you use?
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