Financial Calculus answer
An introduction to derivative pricing
Which is which ?
As it happens,
(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.)
- 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%
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.
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