Geometric Brownian Motion (GBM) is a mathematical model used to describe the evolution of asset prices over time, incorporating both deterministic trends and stochastic volatility. It captures the randomness inherent in financial markets by modeling price movements as a continuous-time stochastic process, which is essential for pricing derivatives and understanding risk. GBM is particularly important in finance, as it forms the basis of the Black-Scholes option pricing model, making it a key concept in both stochastic processes and Monte Carlo simulations.
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