Create a brownian motion process for stock returns

Assignment Help Finance Basics

Reference no: EM131086875

Create a Brownian Motion Process for Stock Returns Using Monte Carlo Simulations in Excel

1. The inputs are the annualized m, s, and S0 that must be calibrated to an index (say, SX5E). Because of the choice of discretization in (4.71), one should use simple historical returns (as opposed to log),

S₀ will be the last available price for the index in question.

2. Use the prescription in (4.72) to generate 65,000 paths for 21 time steps.

3. Calibration and Generation Check. For the 21^st day return, the Mean, Stdev, and Kurt should be close to the inputs, with Kurt = 3 for Brownian Motion. The 21^st day return will be

Here ?t=. Therefore,

The level of convergence between the simulated μ^MCand σ^MC and the input ones is determined by the quality of the random numbers and the number of paths generated. A detailed discussion on MC simulations and convergence can be found in Glasserman [2003].

4. For the 21^st MC return, one can calculate the 99% and 99.9% VaR and CVaR as described in Chapter 3.

Reference no: EM131086875

Questions Cloud

Relationship between health issue and target population : Relationship Between Health Issue and Target Population: Analyze how social, cultural, and behavior factors in the target population contribute to the health issue; and identify what factors/characteristics are positive or negative and which beha..

Ratio of a circle circumference : Determining ? Experimentally: Recall that ? is the ratio of a circle's circumference to its diameter and that we can calculate the area of a circle with the formula A=?r2.

A graph of the theoretical versus empirical autocorrelation : 4. Use the methodology described in this chapter to calibrate a and β. 5. Provide a graph of the theoretical versus empirical autocorrelation fit as in Figure 4-7.

Describe and illustrate with an example of your own devising : Describe, and illustrate with an example of your own devising, three alternative accounting treatments which might be adopted when lessees account for lease transactions.

Create a brownian motion process for stock returns : 1. The inputs are the annualized m, s, and S0 that must be calibrated to an index (say, SX5E). Because of the choice of discretization in (4.71), one should use simple historical returns (as opposed to log),

Connections and a broadband connection : Develop an entire home network with a budget of $5,000.00. Your configuration must assume the purchase of associated hardware for access to both wireless and wired connections and a broadband connection. For the purpose of your configuration you m..

Create advertising graphics : Media Magic is a media design firm located in Kansas City, MO. Fifteen employees work to create advertising graphics, to develop web page branding, and to create fliers and other advertising materials.

Discuss change in capital structure of financial statement : Describe and discuss the change in the capital structure of the financial statement - it could be either: A change in the liability, such as 1.1 Borrowing from a financial institution, or 1.2 Issuing of bonds.

User Account

All Pages