Editorial Type:
Article Category: Research Article
 | 
Online Publication Date: 01 Jun 2018

Suggested Quality-Assurance Practices for Monte Carlo Analysis of a Geometric Brownian Motion Process

CPA, ABV
Page Range: 74 – 82
DOI: 10.5791/BVR-D-17-00021R1.1
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This article suggests certain procedures that a valuation specialist can perform to test the results of a Monte Carlo analysis of a geometric Brownian motion process. First, this paper describes the Monte Carlo technique and the geometric Brownian motion process. Next, several examples are provided to show simulation results using different assumptions. Finally, this paper recommends certain procedures, calculations, and analyses that will help test the veracity of the model.

Copyright: © 2018, American Society of Appraisers
<bold>Figure 1</bold>
Figure 1

GBM Assumes that the Natural Logarithms of the Returns of a Stock are Normally Distributed

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Figure 2

Ending Walk Prices Based on Random Variables of −2 to 2

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Figure 3

GBM Distribution of Ending Walk Price form Normal Distribution of Random Variables

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Figure 4

Distribution of Natural Logs of Total Returns is Normal

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Figure 5

Estimated GBM Distribution of Ending Walk Price

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Figure 6

Ending Walk Price

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Figure 7

Ending Walk Prices Based on Random Variables of −2 to 2

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Figure 8

Correlation Matrix of Various Stock Prices

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Figure 9

Cumulative Mean Fair Value of Award

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Figure 10

Cumulative Mean Ending Random Walk Stock Price Through Simulation

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