Final answer:
The key takeaway from the Geometric Brownian Motion Model is that it serves as a volatility model, typically used in finance to model the random evolution of asset prices over time.
Step-by-step explanation:
The key takeaway from the Geometric Brownian Motion Model is that it is a volatility model. This model is often used in finance to model the stochastic (random) evolution of prices over time. It is not a linear model because it involves a random component, which makes it unpredictable. The model assumes price changes follow a Brownian motion with constant drift and volatility, which reflects the continuous and random path of an asset's price. Therefore, the correct answer to the question would be C. Volatility model.
Geometric Brownian Motion is often used in the Black-Scholes option pricing formula as it provides a mathematical representation of how an asset's price evolves over time. The key assumption in this model is that the logarithm of the asset price is normally distributed, which implies that the asset's price itself follows a log-normal distribution. Hence, while the model captures the erratic nature of an asset's price movements, it does not represent a chaotic system. Rather, it provides a way to model the volatility in a systematic manner.