GBM with adjusted normal distribution
Staf
To model a structured product, I thought of using a geometric Brownian motion model, where I choose a certain mean and variance for the normal distribution to make sure that a certain percentage of paths (as a result from Monte Carlo) cross a threshold value where different conditions apply. However my question is does this violate the risk-free and arbitrage free assumption? Meaning I can no longer discount using the risk-free rate? Please let me know if i need to provide any more information.