Assuming the trend and volatility of stock price S are proportional to the current value of S, which of the following you will use to describe the stock price dynamics:
(a) the Wiener process,
(b) the generalized Wiener process,
(c) the Ito process, or
(d) the geometric Brownian motion (GBM)?
Carefully explain all relevant concepts and your choice. Formulate a process for the 1-week change of the price of a stock that pays no dividends, has an expected return of10 % per annum, volatility of 20% per annum, and is currently priced at £100.