Financial analysts often use the following model to characterize changes in stock prices: where P0 = current
Question:
Financial analysts often use the following model to characterize changes in stock prices:
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where
P0 = current stock price
Pt = price at time
μ = mean ( logarithmic) change of the stock price per unit time
σ= ( logarithmic) standard deviation of price change Z = standard normal random variable
This model assumes that the logarithm of a stock’s price is a normally distributed random variable (see the discussion of the lognormal distribution and note that the first term of the exponent is the mean of the lognormal distribution). Using historical data, we can estimate val-ues for m and s. Suppose that the average daily change for a stock is $ 0.003227, and the standard deviation is 0.026154. Develop a spreadsheet to simulate the price of the stock over the next 30 days if the current price is $ 53. Use the Excel function NORM. S. INV( RAND( )) to generate values for Z. Construct a chart showing the movement in the stock price.
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Step by Step Answer:
Stock Prices Day Price Current Price 5300 0 5300 Mean 0003227 1 5226 SD 0026154 2 ...View the full answer
