A continuous-time stochastic process for modeling the behavior of stock prices

Pao Yue-kong Library Electronic Theses Database

A continuous-time stochastic process for modeling the behavior of stock prices


Author: Kwok, Choi-chung Jones
Title: A continuous-time stochastic process for modeling the behavior of stock prices
Degree: M.Sc.
Year: 2001
Subject: Stocks -- Prices
Stochastic processes
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Management
Pages: vi, 71 leaves : ill. ; 30 cm
Language: English
OneSearch: https://www.lib.polyu.edu.hk/bib/b1565034
URI: http://theses.lib.polyu.edu.hk/handle/200/2911
Abstract: Traditionally, two approaches are commonly adopted by market professionals to predict stock values: Technical theories and Fundamental analysis. However, in the past few years, quantitative techniques have started to move from the radical fringe into mainstream. This proposed study is to follow the Wiener process and previous researches to build a model for the behavior of the stocks in Hong Kong. Based on the derived model, a simulation program is developed by using Microsoft Excel to simulate the behavior of stock prices for selected stocks in Hong Kong. From the simulation results, validity of the model is tested. According to the testing result, the trend of stock price movement, whatever moving upwards or downwards, does not have any implications to the accuracy of the model. A compromise that seems to work reasonably well is to use closing prices from daily data over the most recent 30 days to predict the price behavior for next 10 trading days. The volatility parameter in the model does show an effect for the accuracy of the model. The larger the volatility, the less efficient the model will be. Lastly, we discover that the average of a set of simulated stock prices over time can be more effectively applied for formulating the behavior of stock prices. Suggestions for future research are given at the end of the dissertation.

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