Statistical Analysis of Data from the Stock Market
Black & Scholes assumed in their seminal work  that the returns from the underlying stock are normally distributed. The main part of this chapter will be devoted to testing this normal hypothesis on the distribution of observed stock returns. Our purpose is to highlight the basic assumptions and emphasize the limitations of their model. We will also go into other aspect of the stochastic dynamics of the underlying stock. On the way we shall introduce Brownian motion and Lévy; processes, as well as some powerful statistical distributions to model stocks returns. This chapter will demonstrate the typical problems one is dealing with in empirical finance.
KeywordsBrownian Motion Stock Price Geometric Brownian Motion Scholes Model Simulated Path
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