12.2 The stock Price Assumption o Consider a stock whose price is S ° In a short period of time of lengthδt,the return on the stock is normally distributed OS ≈u6t,o√δt where u is expected return and o is volatility Options, Futures, and Other Derivatives, Sth Edition C 2002 by John C. Hull12.2 Options, Futures, and Other Derivatives, 5th Edition © 2002 by John C. Hull 2 The Stock Price Assumption • Consider a stock whose price is S • In a short period of time of length dt, the return on the stock is normally distributed: where m is expected return and s is volatility ( t t) S S   md s d d