Abstract

The author discusses his involvement in developing computational finance software. These computational finance models attempt to model the randomness of a stock's price. At a fixed future time, a stock's price is modeled as a random variable with a normal distribution centered about the current price adjusted with a simple growth multiplier. The standard deviation of this normal distribution depends on the length of time into the future one peers and the volatility of the market. As the market becomes more volatile and we look further ahead, the less likely the stock will have a price near the adjusted current price. Implementing these ideas requires a tool borrowed from physics called the Brownian motion. In a sense, a stock's price is modeled as a point fluctuating about in "dollar space". Hence a financial modeler can no more predict what price a stock will have at a given instance in time than a physicist can predict where a particular air molecule might be.

Meeting Name

26th IEEE Photovoltaic Specialists Conference, 1997

Department(s)

Business and Information Technology

Keywords and Phrases

Brownian Motion; Computational Finance Models; Computational Finance Software; Current Price; Dollar Space; Economic Cybernetics; Financial Data Processing; Financial Modeler; Fixed Future Time; Growth Multiplier; Modelling; Normal Distribution; Random Variable; Randomness; Stock Markets; Stock Price Modeling

International Standard Serial Number (ISSN)

0278-6648

Document Type

Article - Journal

Document Version

Final Version

File Type

text

Language(s)

English

Rights

© 2000 Institute of Electrical and Electronics Engineers (IEEE), All rights reserved.

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