Hi, can someone please confirm whether the following assumptions are correct: If the volatility parameter for the B/S formula is 40% then the statistical daily change is vola / sqrt(tradedaysinyear). Ie. using annual 256 tradedays this gives 40/sqrt(256)=2.5 %, meaning the price of the underlying can vary +/- 2.5% daily. But this represents just 1 StdDev. How many StdDevs should one take in a simulation? I read somewhere that +/- 1 SD represents about 68.3% of the cases, +/- 2 SD=95.4% and +/- 3 SD represents about 99.7 % of the cases. So my question is this: if the above said is correct, then how many SDs should I take for generating artifical stock prices in a random walk simulation?

*The* fundamental assumption underlying the BS model is that (log) stock returns are normally distributed. They make this assumption because it's convenient from a mathematical point of view, not because it's correct. So, if you're going to generate random stock prices based on that model... keep in mind you're missing out a *lot* (when compared to empirical observations of how prices move). If you *are* going to use this model... then in whatever program/platform you're using, I'm sure it has a built-in function to give you random samples from a normal distribution, with the standard deviation you set. You really don't need to do that calculation yourself.