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.
Recommended Citation
Hilgers, M. G. (2000). Computational Finance Models. IEEE Potentials Institute of Electrical and Electronics Engineers (IEEE).
The definitive version is available at https://doi.org/10.1109/45.890082
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.
Publication Date
01 Jan 2000
