Stock A and stock B both follow geometric Brownian motion. Changes in any short interval of time are uncorrelated with each other. Does the value of a portfolio consisting of one of stock A and one of stock B follow geometric Brownian motion? Explain your answer.
Question:-
The process for the stock price in equation is
where μ and σ are constant. Explain carefully the difference between this model and each of the following:
Why is the model in below given equation a more appropriate model of stock price behavior than any of these three alternatives?
