Problems with Brownian Motion

Mandlebrot showed that cotton prices are not normally distributed. Subsequently other studies showed more assets do not follow Brownian Motion.

During this decade Brownian Motion was replaced by Geometric Brownian Motion (GBM) in which the logarithm of the price is normally distributed. i.e. The asset price growth with time is exponential plus noise.

Themes

Exponential, Finance, Normal distribution

History