Lognormal Distribution Assumption for Stock Prices (Solved Example)

1. Context

In this video through a solved example, we take a look at the lognormal distribution assumption that the Black Scholes model makes for stock prices. We solve for a probability in the risk neutral world and validate the answer using Binomial Trees approach. This video is an addendum to the finRGB preparation course for FRM Exam Part 1 (https://www.finRGB.com/courses/frm-part-1-online-course). The details of the readings in which this topic appears are given below:

AreaValuation and Risk Models
ReadingThe Black Scholes Merton Model
ReferenceChapter 23, The Black Scholes Merton Model, Official GARP Books (VRM Section, 2021).

2. Video