Consider a stock with an initial price S0 = 50, drift rate µ = .08 and volatility σ = .4. Let ?t = 1/12 (one month) and let T = 1.
(a) Flip a coin 12 times to generate a random sequence of 1’s and −1’s.
(b) Use our incremental Black-Scholes model to generate a possible sequence of stock prices for this stock over the course of a year.