Problem bank

Problem 198 of 333MediumStochastic CalculusP198

Mean and median of a GBM

  1. A stock follows dS=μS dt+σS dWdS = \mu S\,dt + \sigma S\,dW with S0=100S_0 = 100, μ=0.10\mu = 0.10 and σ=0.20\sigma = 0.20. For T=30T = 30 years, find E[ST]E[S_T], the median of STS_T, and P(ST>E[ST])P(S_T > E[S_T]). What happens to that probability as T→∞T \to \infty?