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Can Geometric Brownian Motion Model have negative prices ?
Posted: August 4th, 2005, 4:58 am
by Seagull77
Hi, I need some confirmation whether negative prices can occur under GBM model. Thanks.
Can Geometric Brownian Motion Model have negative prices ?
Posted: August 4th, 2005, 5:04 am
by Tau
Nope. Unless initial is negative. Have you seen negative stock price?
Can Geometric Brownian Motion Model have negative prices ?
Posted: August 4th, 2005, 7:08 am
by vplanas
QuoteOriginally posted by: TauNope. Unless initial is negative.As Tau said, theoretically it is impossible if you start at a positive number. However, if you are integrating numerically a GBM it could happen that your path goes to negative number, especially with Euler schemes. You have to take care of that.Quote Have you seen negative stock price?No, but we dont know either if stock prices follow a GBM. (what i mean is that this cannot be a proof)