This simulates the behavior of prices of stocks or other commodities, in a model sometimes called "geometric brownian motion". The transition from the price at one time to the next is

Price(t) = Price(t-1) * exp(mu + 0.5 * sigma * Z)

where mu = "drift" , sigma = "volatility" and Z is the value of a (0,1)-normal random variable. The choice of seed (and other data) completely determines the rest, so everything that happens is reproducible.

Note: There are certainly many possible variations on the formula above, and apparently varying possible conventions or usages concerning the symbols. I am told by people who know better than I that there is reason to write, instead,

Price(t) = Price(t-1) * exp((mu-sigma^2/2) + sigma * Z)
But this is not what the applet does, for better or for worse.

© 1997-2004 , Paul Garrett ... [ ]
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