While scanning the market for good picks, a Trader comes across a stock that exhibits properties of a Geometric Brownian motion. Determine whether one is going to make or lose money if they decide to invest in this stock.
Hint: For a Geometric Brownian motion, there is a 50% probability that the path will go either up or down from its current position.
Lets say we have a trading model that has only a single parameter which can be modified in-order to change the profits the model can generate. Presently, the model’s parameter is set to 160 and generates profits of £15million / year.
A Quant thinks this parameter is not ideal, and that the best value to achieve maximum profits lies in the range 150 to 170.
Calculate the difference in profitability that may be expected as a result of tweaking this value.
