For example, in the modern theory of option pricing, asset classes are sometimes modeled as if they move according to a closely related process, geometric Brownian motion. The mathematical theory of Brownian motion has been applied in contexts ranging far beyond the movement of particles in fluids. These are all reasonable approximations to the physical properties of Brownian motion. In fact, the Wiener process is the only time- homogeneous stochastic process with independent increments that has continuous trajectories. Brownian motion is related to the random walk problem and it is generic in the sense that many different stochastic processes reduce to Brownian motion in suitable limits. These properties clearly establish that Brownian motion is Markovian (i.e. Mathematically, Brownian motion is a Wiener process in which the conditional probability distribution of the particle's position at time t+d t, given that its position at time t is p, is a normal distribution with a mean of p+μ d t and a variance of σ 2 d t the parameter μ is the drift velocity, and the parameter σ 2 is the power of the noise. Jean Perrin carried out experiments to test the new mathematical models, and his published results finally put an end to the century-long dispute about the reality of atoms and molecules. This random bombardment by the molecules of the fluid would cause a sufficiently small particle to move in exactly the way described by Brown. Albert Einstein observed that, if the kinetic theory of fluids was right, then the molecules of water would move at random and so a small particle would receive a random number of impacts of random strength and from random directions in any short period of time. The first to give a theory of Brownian motion was Louis Bachelier in 1900 in his PhD thesis "The theory of speculation".Īt that time the atomic nature of matter was still a controversial idea. By doing the same with particles of dust, he was able to rule out that the motion was due to pollen being "alive", but it remained to explain the origin of the motion. He then observed minute particles within vacuoles in the pollen grains executing the jittery motion that now bears his name. The story goes that Brown was studying pollen particles floating in water under the microscope.
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