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Abstract

This paper presents some Excel-based simulation exercises that are suitable for use in financial modeling courses. Such exercises are based on a stochastic process of stock price movements, called geometric Brownian motion, that underlies the derivation of the Black-Scholes option pricing model. Guidance is provided in assigning appropriate values of the drift parameter in the stochastic process for such exercises. Some further simulation exercises are also suggested. As the analytical underpinning of the materials involved is provided, this paper is expected to be of interest also to instructors and students of investment courses.

Fig1.xls (162 kB)
Excel file accompanying Figure 1

Fig2.xls (168 kB)
Excel file accompanying Figure 2

Fig3.xls (312 kB)
Excel file accompanying Figure 3

Fig4.xls (270 kB)
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