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micha12
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CDF & PDF of stock price (geometric motion)

June 24th, 2009, 5:12 pm

Could anyone please provide me with the formula of the cumulative distribution function of the stock price (geometric brownian motion)? So that one could calculate the probability that the stock price rises by more than 20% in 1 year, given 30% volatility and 10% drift, for example.I have only found the probability density function at http://www.sitmo.com/eq/157, but I need a CDF, and also the PDF formula seems to be giving incorrect results (or maybe I just made a mistake).VBA / C++ code of the CDF / PDF would also be great.
 
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LocalVolatility
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CDF & PDF of stock price (geometric motion)

June 24th, 2009, 9:09 pm

If you want to calculate the probability of the (continuously compounded) return being bigger than x then you can directly work with the PDF / CDF of the yields. And you know that these are normally distributed with mean = mu * T and variance = sigma^2 T. So just go for NORMDIST in Excel or in C++ use e.g. the numerical recipes library.Alternatively if you have a level X and want to calculate the probability of ending up above that level then just re-use the Black-Scholes result that P{S_T > K} = N(d_-).
Last edited by LocalVolatility on June 23rd, 2009, 10:00 pm, edited 1 time in total.