February 3rd, 2011, 4:41 am
Hi WilmottersI have a couple of question and I try to formulate them as best as I can:We have a GBM for asset S, we know its value at time t=0 is 10, and its value at time T=1 is 25we want to, using monte carlo, simulate the asset price in between.solution of GBM is obviouslys(T)=s(t) * exp( (r-0.5*sigma*sigma)*tau + sigma*sqrt(tau)*z) tau=T-tI know that we can use Brownian Bridge for this.If I want to use BB construction algorithm (the bisection algorithm in jackel or Glasserman's); this algorithm, first creates the BB value for t_n (which is our T) by W(t_n)=z1*sqrt(t_n)1-Am I right to assume that I need to inverse GBM solution (above) to get the right z for the terminal price, and then use z1=z/sqrt(t_n) to start the BB construction ?2- for generating the asset price in between, Is it correct then to use GBM solution (above) but replace z with BB values at each time point ?Thanks in Advance