Financial Calculus answer

Financial Calculus
An introduction to derivative pricing
Which is which ?

As it happens,

The left-hand graph is the UK FTA index from 1963-92
The right-hand graph is exponential Brownian motion with volatility of 17.8% and annual drift of 8.7%

(A key feature to look for is the 1974 crash which in log-terms was much more devasting than the market `readjustment' of October 1987.)

Well done if you can tell the difference. But in any case, to find out why this similarity helps price derivatives, you can buy the book.

Return to book page