Hull has a good example of simulating stock price changesΔS = μSΔt + σSε √Δt change in price = mean x Price x time delta + volatility x Price x srt(t) + norminv(rand(),0,1)I am just learning and therefore confused (i) Are mean, μ and volatility σ calculated on the time series or on the absolute daily price changes, or the log of daily price changes.(ii) Can this model be applied to interest rates? Again how should μ and σ be calculated? Is it valid to substitue the intrest rate level I, for S ?(iii) if the timeseries is daily is Δt = 1/365 or 1/number of business days e.g 250An example for interest rates would be much appreviated Thank You

1. log of daily returns2. usually interest rates are mean-reverting, so look up the Cox-Ingersoll-Ross model or the Vasicek model. These are basic mean-reverting models used for interest rates.3. I would use the number of business days (252)