An introduction to stochastic modelling ofunderlying assets

Abstract

The aim of this paper is to show a methodology, based on the so-called Lognormal Model, to describe the dynamics of underlying assets by taking into account the uncertainty of nancial markets. In spite of its simple formulation, the Lognormal Model is a valuable tool from a formative standpoint becauseit provides an excellent basis to study more advanced models. The proposed approach has been put into practice by the authors in their teaching in both undergraduate and postgraduate studies. We present the model and its application to describe the dynamics of real data of an asset traded in the Spanish stock market index IBEX35.

Keywords

• Modelización estocástica de subyacentes cotizados
• Ecuación estocástica
• Estimación de parámetros