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Geometric Brownian motion

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Geometric Brownian motion
Geometric Brownian motion is a model frequently used for the Diffusion process followed by asset prices. Standard Brownian motion is a Random walk process with Gaussian increments; that is, changes in the asset price are normally distributed. The term geometric means it is the proportional change in the asset price (as opposed to the absolute level) that is normally distributed. This gives the model useful properties, in that the asset price cannot be negative, and that the logarithm of the asset price Will be normally distributed, making the model analytically tractable.

See also Stochastic process
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