11.2 The Stock Price Assumption >Consider a stock whose price is s >In a short period of time of length At the change in then stock price S is assumed to be normal with mean uSat and standard deviation oS√△t, that is, S follows geometric Brownian motion ds=u Sdt+oSdz Then dInS=( )at t odi u is expected return and o is volatility Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University11.2 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University The Stock Price Assumption ➢Consider a stock whose price is S ➢In a short period of time of length Dt the change in then stock price S is assumed to be normal with mean mSdt and standard deviation , that is, S follows geometric Brownian motion ds=m Sdt+Sdz. Then ➢m is expected return and  is volatility S Dt