Jarrow-Rudd Model

The Jarrow-Rudd model is a way to describe how stock prices change over time, considering that they move randomly but with some regular patterns. It assumes that at each step, prices can go up or down by a certain amount, influenced by factors like market volatility and expected returns. Unlike simpler models, it accounts for risks and the chance of bigger swings, helping investors and analysts better estimate future price behavior and price options more accurately. Essentially, it provides a mathematical framework to predict stock movements with a realistic view of market uncertainty.