Simulate Geometric Brownian Motion with Excel

Learn about Geometric Brownian Motion and download a spreadsheet

Stock prices are often modeled as the sum of

  • the deterministic drift, or growth, rate
  • and a random number with a mean of 0 and a variance that is proportional to dt

This is known as Geometric Brownian Motion, and is commonly model to define stock price paths.  It is defined by the following stochastic differential equation.

Geometric Brownian Motion
Equation 1
Weiner Process
Equation 2

St is the stock price at time t, dt is the time step, μ is the drift, σ is the volatility,  Wt is a Weiner process, and ε is a normal distribution with a mean of zero and standard deviation of one .

Substituting Equation 2 into Equation 1 gives

Geometric Brownian Motion
Equation 3

Hence  dSt is the sum of a general trend, and a term that represents uncertainty.

Drift and Uncertainty in Geometric Brownian Motion

Simulate Geometric Brownian Motion in Excel

Converting Equation 3 into finite difference form gives

Geometric Brownian Motion Finite Difference
Equation 4

Bear in mind that ε is a normal distribution with a mean of zero and standard deviation of one. This can be represented in Excel by NORM.INV(RAND(),0,1).

The spreadsheet linked to at the bottom of this post implements Geometric Brownian Motion in Excel using Equation 4.

Geometric Brownian Motion Excel

Simulate Geometric Brownian Motion in Excel

5 thoughts on “Simulate Geometric Brownian Motion with Excel

  1. I need a free software for ornstein uhlembek, geometric Geometric Brownian Motion, jump diffusion, regime switching and mean reverting method

  2. Hi Samir,
    Wonderful website!
    I’m trying to do a Brownian motion code for VBA.
    But something doesn’t work.
    Could you please help me?
    Thanks in advance for your comments.

  3. Hi,
    Thank you for your useful website, but I did not understand about the time steps. 0.01 of what? for example if i have 13th of Dec 2014 stock price as my initial price ,how i can predict the stock price 14,or 15th of Dec 2014?how this time step(0.01)will help me?

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