micha12
October 24th, 2002, 11:04 AM
Hello,
Suppose we have a stock that costs today $100. The price of the stock at the end of the year is lognormally distributed. The expected rate of return of the stock is 0, and the variance of the return is 50%.
By making Monte-Carlo simulations I found out that the expected price of the stock at the end of the year is MORE than $100 (the more the variance of the return, the more is the expected price). It seems strange to me, since the expected return is 0 (zero!).
Could anybody explain this to me?
Suppose we have a stock that costs today $100. The price of the stock at the end of the year is lognormally distributed. The expected rate of return of the stock is 0, and the variance of the return is 50%.
By making Monte-Carlo simulations I found out that the expected price of the stock at the end of the year is MORE than $100 (the more the variance of the return, the more is the expected price). It seems strange to me, since the expected return is 0 (zero!).
Could anybody explain this to me?